The drop in the value of the Pound and volatility on the stock market in the wake of the Brexit vote has brought forward the crisis in Britain’s economy. However, Brexit is not the cause of the problems according to Roger Blitz at the Financial Times:
“Even if the UK had voted to remain in the EU, market attention would have quickly refocused on some dread economic realities: global growth is stagnant; the prospect of a US interest rate rise remains distant; China worries have not gone away; and the US economy is still limping along. A vortex of zero or negative rates persists, and an agenda of rate cuts and further monetary easing lingers.”
Like his predecessor, George Osborne failed to fix the roof when the rain stopped, and instead left all of the elements of the 2008 crisis in place. As Josh Ryan-Collins at New Economics Foundation notes:
“The UK’s banking system is deeply dysfunctional – overexposed, over-concentrated and still too big to fail. Brexit will only serve to exacerbate these long-term weaknesses and, as in 2007– 8, it is taxpayers who stand to pay the price.”
Unfortunately, the measures available to central banks to mitigate the 2008 crash have largely been used up. Britain and the USA have interest rates at 0.5%; Japan and Europe have negative interest rates. Each has been using quantitative easing in an attempt to stimulate bank lending, but this has come with diminishing returns. This time there is a very real risk that too-big-to-fail might turn out to be too-big-to-save.