The apparent resilience of the UK economy in the face of last year’s Brexit vote has confounded economists and pundits. The Remain Campaign’s dire ‘project fear’ predictions simply failed to materialise. The sharp fall in the stock market – more a reaction to the surprise result than to its economic consequences – was quickly reversed. The fall in the value of the Pound had little immediate impact on inflation, and even gave a spur to Britain’s remaining export industries.
This apparently positive economic news has emboldened Brexiteers who, at their most extreme, believe that even a so-called ‘hard Brexit’ will be positive for the UK economy. However, new ‘dynamic factor modelling’ by Swiss banking giant UBS indicates that British firms and, especially, consumers experienced a kind of economic denial in the 12 months after the Brexit result. As Will Martin at Business Insider reports:
“The story of Britain’s economy in the year or so since the Brexit vote is well-known. For almost an entire year growth remained strong as companies and households largely ignored the uncertainty surrounding Brexit.
“As 2017 progressed, growth began to stutter, with the economy growing just 0.2% in the first quarter of the year, and just 0.3% in the second quarter (at the latest estimate).
“That is because Brexit has started to affect consumer spending, as Brexit-driven inflation starts to impact the ability of British households to spend money on non-essential items – clothing, eating out, etc.”
Crucially, the rate of consumer borrowing – which is the main means by which new currency is created – has fallen sharply in 2017. This drop in private currency creation will be exacerbated by the UK government’s insane persistence with a failed austerity programme that is deliberately designed to dramatically lower the amount of currency in circulation.
This means that in addition to the squeeze on households caused by inflation and falling real wages, Britain’s firms will soon experience falling demand; followed by the inevitable round of redundancies and pension fund failures that will further damage the UK economy. According to the UBS economists, the best the UK can look forward to near zero-percent GDP growth for a sustained period.