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The Brexit bounce that’s making doom-mongers look foolish

If you’ve declared imminent catastrophe to be certain, and it doesn’t happen, what can you do next?

10 September 2016

9:00 AM

10 September 2016

9:00 AM

Next time it comes to redesigning the PPE course at Oxford, I suggest a module beginning with a quotation from George Osborne. It’s something he said to the Treasury Select Committee in May, back when he was still Chancellor: ‘If you look at the sheer weight of opinion, it is overwhelmingly the case that people who look at the case for leaving the EU come to the conclusion it would make the country poorer, and it would make the individuals in the country poorer, too.’ There might be advantages to Brexit, he said, ‘but let’s not pretend we’d be economically better off’.

In other words: it wasn’t just George Osborne’s opinion that Britain would be worse off if we left the EU; it was objective fact. It wasn’t just that he thought he was winning the argument; there was no argument to be had, because the experts agreed beyond all reasonable doubt. Osborne was so sure that he published a draft of the emergency budget which would be needed in the post-Brexit meltdown, and made some startlingly exact predictions. Households, he said, would be £4,300 worse off by 2030 — after the inevitable surge in mortgage rates, property crash, and half a million job losses.


Ross Clark, Torsten Bell and Isabel Hardman discuss the Brexit bounce back:


It has become a familiar trick in politics: try to claim ownership of the truth. Whether it be David Miliband as environment secretary in 2006 telling us that the science of climate change was ‘settled’, or a committee of MPs trying to claim, on the back of a few low-grade academic papers, that drugs policy had failed beyond all question, we are continually told that it is not possible to disagree with a consensus of experts. Do so, and you are a part of the ‘post-fact society’.

There is just one problem with this line of argument: if your experts turn out to be wrong, you end up looking pretty silly. That is exactly where George Osborne and many of his fellow Remainers stand now. We haven’t yet left the EU, of course, and there could well be other economic shocks before we do, but the talk of immediate financial meltdown stands exposed as bunkum. The Financial Times, whose hysteria over the issue has led it to run a weekly doom-o-meter of economic data, has found the figures reporting fairly robust economic health.

True, there was an initial wave of panic when the referendum result became clear on the morning of 24 June. The stock market and the pound plummeted. That much really was inevitable, given what the Chancellor and the Governor of the Bank of England had said about the dangers of Brexit, and how completely the result caught the markets — along with the pollsters and the bookies — by surprise. Yet by the next Monday the FTSE 100 was bouncing back and over the following week it rose above its pre-referendum level. The FTSE 250, less stuffed with giant global corporations, took longer to rebound — but by the end of July it, too, was trading higher than it had done on the eve of the vote. Investors seemed to have come to a consensus of their own — one that flew in the face of Osborne and his phalanx of economists.


Then there was that awful interregnum after David Cameron announced that he had no plan for Brexit, and that he was resigning, and it looked as if there would have to be a months-long Tory leadership contest before anyone began to take charge. Surveys during that 18-day period would have produced gloomy results. No one felt able to challenge Mark Carney when he said that some risks of Brexit had ‘begun to crystallise’. Everything that the Remain camp had warned us about appeared to be coming true. Even the Brexiteers, few of whom ever denied there would be turbulence, seemed to be bracing-themselves.

Things are looking very different now. The indexes of business and consumer confidence that plunged in July seemed to surge just as much in August — a Brexit bounce.

Take perhaps the most famous of these, the Purchasing Managers’ Index — a monthly survey which grills some of the best-informed people inside a panel of 650 companies on how their businesses are doing, and is often used as a proxy for the health of business as a whole.

It is produced by an outfit called IHS Markit, and as late as 22 July their chief economist, Chris Williamson, was warning of a ‘dramatic deterioration’. His index had fallen to 47.7; anything below 50 means that the economy is shrinking. The last occasions on which it had fallen like that, he said, had been during the global financial crisis, the bursting of the dotcom bubble and the 1998 Asian financial crisis — but he wouldn’t want us to be unduly reassured: ‘The difference this time is that it is entirely home-grown, which suggests the impact could be greater on the UK economy than before.’

Then, last month, the index bounced back up to 53.2. Suddenly Williamson sounded like a different man: ‘A record rise in the services PMI adds to the encouraging news seen in the manufacturing and construction sectors in August to suggest that an imminent recession will be avoided.’

Steadily, economists who rather lost their heads during the EU referendum campaign have been pulling themselves together. Credit Suisse this week doubled its growth forecast for the UK economy. Morgan Stanley has withdrawn a recession forecast, as has Chris Giles, economics editor of the Financial Times. Ian Stewart, Deloitte’s chief economist, pointed out what the more excitable economists should have realised: uncertainty is not the same thing as calamity. ‘Brexit is a political turning point whose long-term implications are unknown,’ he pointed out. ‘In that respect it has something in common with Labour’s election landslide in 1945 or Mrs Thatcher’s in 1979. But Brexit is not a global economic shock.’

Every day the business news reinforces this story. Spending in shops rose by 1.4 per cent in July, according to the Office for National Statistics, and unemployment fell by 8,600. In August, 3.3 per cent more new cars were registered than in the same month last year. And the warnings of the Remain camp that a vote for Brexit would harm investment in the UK? That was rather scotched in July when chip manufacturer Arm announced it had agreed to be taken over by Japan’s Softbank — a deal that appears only to have been proposed since the Brexit vote.

Consumers, meanwhile, seem thoroughly cheerful. Lloyds Bank’s spending power report for July suggested they were more confident of their finances than at any time since the survey began five years ago. Should we be surprised by that? Not really. The majority of the public did, after all, vote to leave the EU. Why would they have voted for Brexit if they thought that it would hurt them personally, and why should they now be frightened of a decision which they themselves made? The scare stories never hung together on this one — it’s quite possible that consumer confidence is strong not in spite of the vote for Brexit, but because of it. The majority judged, contrary to Osborne, Carney and co, that Britain might actually benefit from leaving the EU. They got what they wanted and now they feel good about the future.

This, needless to say, is not how diehard Remainers see it. Many who warned of economic Armageddon have switched to an alternative narrative: yes, the economy is doing OK, but only thanks to a drastic intervention by the Bank of England, which lowered rates to 0.25 per cent and printed another £40 billion through quantitative easing. Chris Williamson of Markit, for instance, acknowledges the slew of positive data, but adds: ‘You can’t say that everyone who was ringing the alarm bells over Brexit was scaremongering because really it was the warnings that triggered those strong policy actions.’ In other words, the economy is recovering but only because his index looked so scary that the Bank of England had to act.

These doom-mongering wise men, it seems, can’t be wrong: if the economy tanks, they told us so; if it doesn’t, that’s because they saw the crisis coming and rallied round to prevent it. Bravo, doom-mongers.

We will never know whether lower rates or quantitative easing made a difference — on this occasion or any other. The only scientific way to do that would be to construct two identical economies in parallel universes, then cut rates and pump up QE in one while leaving the other alone. If such an experiment could be done, it is far from certain that it would show the Bank of England’s actions had any effect at all.

But what we do know for sure is that the economy has failed to suffer the disaster predicted by Osborne, Carney and many others. Moreover, it has rebounded without the emergency budget that Osborne said would be necessary.

There is little to fear about the immediate future. One thing hasn’t fully rebounded: the pound. That is a massive stimulus for our exporters, helping to keep them competitive. And meanwhile, warnings about the EU’s inability to handle globalisation do seem to be borne out. The EU and US trade deal is said to be on the point of collapse, despite the EU’s supposed collective negotiating clout. Countries outside the EU, such as Switzerland, seem quite capable of doing trade deals with the like of China and Japan, while the EU has so often failed.

What Brexit, when it comes, will eventually mean for the UK economy is still, of course, highly uncertain. Turbulence is inevitable — but how much of it we will feel, and when it will come, is impossible to predict. But one thing is for sure: those who said that leaving the EU would lead to economic collapse, and who claimed that they couldn’t possibly be wrong because they had a consensus of experts behind them, are already looking a tad silly.

Spectator.co.uk/podcast
Hear Ross Clark on this week’s podcast.

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