After the referendum on June. 23, 2016, the British economy has followed a lower profile. This comes from changes in expectations: uncertainty about Brexit rules has created a wait and see behavior and opportunities in other countries have changed people and companies’ mind about investing in the UK.
Therefore the economic trend has changed. We can see that in the graph below. The trend from the start of the recovery in 2013 to the second quarter of 2016 has been extended to the first quarter of 2018. There is a widening gap between real GDP measured by the ONS and the pre-Brexit trend. It the cost of Brexit for the UK. We see a real change after the referendum. Continue reading
At a conference in London, I listened to a Welsh member of the European Parliament’s statements on Brexit this afternoon.
A number of points are worth noting on this MEP’s remarks:
The first point is the intention that has already been stated elsewhere of standing against the whole world to make Brexit a success, and this triumph requires the support of the entire British population.
[Comment: no objections from the floor] Continue reading
Agreement on the Brexit “divorce bill” is very good news, involving the UK settling its outstanding commitments to the rest of Europe. Trade negotiations will now be able to start and they will not be straightforward, as Michel Barnier recently explained with the backing of the remaining EU 27. There will be no exceptions to the rule, the UK cannot have a tailor-made agreement, all sectors will be treated equally with no special allowances. Continue reading
The Bank of England has increased its main rate by 25 basis points to 0.5%.
Two reasons to explain this movement
1 – The British economy has changed and its productivity trend is much lower now than before the crisis. This means that the risk of overheating is associated with a lower growth rate than before the crisis. Therefore the BoE has to move more rapidly than in the past, the equilibrium BoE interest rate is lower.
Nevertheless, if Brexit is a source of weakness according to the BoE it is not a source of rupture (this can be discussed). The economic scenario of the BoE is quite optimistic as it suggests that productivity growth could improve converging to the momentum seen in other developed countries. Continue reading
Negotiations on Brexit may lead to a negative and persistent shock in the United Kingdom as it will deeply change rules for the external trade. Therefore there is a need to carefully look at the domestic demand momentum in order to eventually counterbalance this negative and persistent shock.
At the same time, the Bank of England has mentioned (Carney in Sintra or Saunders here) that the monetary policy could be normalized. In other words, the BoE is wondering if there is still a need for stimulus. Here too it is interesting to carefully look at the domestic demand to see if the need for stimulus is superfluous or not. Continue reading