One, disastrous, feature of the Reman campaign last year was the claim that if the UK voted leave then the country would require an immediate emergency budget because it would go into immediate recession. This, of course did not happen because Osborne was dumped for saying it. And the downturn did not seem to appear. Until now that is.
As the FT reported yesterday, retail sales excluding food fell in the first quarter of this year. And as the Guardian reported, despite supposed record levels of UK employment (about which claim I am dubious anyway) there was a fall in real wages last month, which is a trend set to continue because of current inflation rates. Now I know that technically this does not create a recession but for most people these are the factors that matter, and as a result economic bad news has arrived, but nine or so months later than George Osborne thought.
Osborne's error was significant. It undermined the credibility of the Remain campaign because no one really thought the roof would fall in on June 24 last year. After all, a small majority were elated by the result and of course they felt good and so went spending. The failed prediction then let Brexiteers suggest that Leave was already a success. That was as untrue as Osborne's claim. Of course Brexit was not proved a success by what happened last summer: Brexit has still not happened.
The error was in basic economics and is telling. It tells us that the Treasury still clings to pure market theory. This says that people are rational and perfectly predict the consequences of the future in their current behaviour. So, the Treasury assumed people would know last June that the decision the UK had made would have poor long term consequences and people would immediately react by stopping spending and investment, so sending the UK into an immediate economic downturn.
Wiser economists, not so taken with a theory that is so obviously far-removed from observable human behaviour, realise that this is not what happens in the real world. People rarely shudder to economic halts. They do instead take time to process and react to new information. In this case at least six months was required to get to the reaction, and now we can see it. The uncertainty of our current situation, coupled with the reaction to a falling pound, has created lower income and consumer uncertainty. It will take something pretty staggering in economic terms to change either of those situations in the rest of this year.
Brexit may not have happened as yet. It may not happen still. But its economic impact has arrived. If people don't like that life for the Brexiteers is just about together a lot tougher. As Philip Hammond put it, no one voted Brexit to be worse off. But people are just discovering that is what they got. And I'll say with some confidence that many won't like it. May's honeymoon is well and truly over.
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The problem is that you can talk yourself in to a recession and with the London based medias constant bleeting about it being the end of the world its bound to have an impact. As we havent actually left yet the down turn is either natural or related to Media negativity
I think you’ll find it’s a response to uncertainty
And economic realities, like a falling pound
Oh really? What about the London based media like The Telegraph, Mail, Express, Times, The Sun, all keen (or should that be rabid?) proponents of leaving the EU. They’ve all been telling us this is absolutely wonderful, that ‘sunlit uplands’ await us, etc etc.
And as for this being a natural downturn…..what a ridiculous excuse. We have a downturn caused by a falling pound and massive uncertainty for business, all on top of the government’s ludicrous austerity economic policy.
And we haven’t even started negociations in earnest yet, let alone left the EU.
I’m not sure there is a coherent ‘negativity’ in the media, there are some outlets extolling the benefits of Brexit (without much substance or precision) as well as those pointing out the real problems we will be faced with. That being said, even if we ‘talk’ ourselves into a recession, it is still real.
I’ve read similar comments like this from Brexiters (I’m not suggesting you are one by the way) asserting that there is a danger of people talking us into a recession. I confess I’m not sure how viable such a thing is, but I think it is sounds a bit desperate. A bit like arguing that the weather is bad because people keep talking the weather down.
I think your last sentence is great
I may use it in future
“As we havent actually left yet the down turn is either natural or related to Media negativity” – so I guess it is natural that Japanese & South Korean companies are looking to move the Europen/EU elements of their UK operations to other EU member states – the Dutch are handling more than one enquiry a week from these companies – & this is first hand -i.e. I have met & spoke to the person covering inward investment into NL – very little to do with “media negativity” & very much to do with the Japanese/Koreans seeing which side their bread is buttered – & there will be plenty of others – but hey – the Brexiters knew all this – didn’t they?
I’ve had six clients close down their longstanding businesses over the past six months, they’ve been running for 8-40 years, and 3 more thinking about it. Admittedly a few of them have been struggling for a while. Two larger scale local employers are apparently talking about relocating into Europe if we leave the single market. I don’t think it’s the press driving this but economics.
Things are only just starting to unravel but the pace will accelerate very quickly. The pound hasn’t slipped further but that’s a matter of time.
I hope that you are right. I hope that there is an epiphany of sorts – painful as it will be.
The only pig in the poke however is credit/debt. There seems to be a plentiful supply of that at the moment which will enable the economy to artificially float above the problem before hand? So it looks like yet another period of credit terraforming setting is up for yet another crash too?
I have just watched the film ‘The Big Short’ – a dramatisation based on a book about the 2008 crash. It is brilliant film making and might be even more accessible than the documentaries like Inside Job and The Flaw in many ways. It does try to explain what happened and does a great job.
If you watched that film (or the other very good documentaries), you would not be so ready to blame Europe for our downturn or accept that New Labour bankrupted the nation or that the disabled and unemployed are bleeding us dry.
There is such a lot of info out there that tells us the truth. Yet the lies persist (and the injustice) persists.
The question is ‘When will people get it?’. How low do we have to go before they do?
I wish I could answer that
I really should see the film
I’d also strongly recommend ‘Margin Call’ with Kevin Spacey & Jeremy Irons (http://www.imdb.com/title/tt1615147). It’s a fictionalised account of the 24 hours preceding what is effectively the Lehman Brothers collapse. The New Yorker magazine called it “easily the best Wall Street movie ever made”.
Can I second Pilgrims recommendation of the Big Short – brilliant and savage. Sadly the lessons have not been learnt
The thing which stays with you after watching The Big Short is the sheer levels of stupidity which led to the development of the crisis. It was so obvious that the CDS market which had developed was fatally flawed but nobody noticed other than a handful of investors/financiers who were laughed at when they started betting against the system.
An appallingly entertaining film – by appalling, I mean the viewer’s response to the foolishness which crashed the world’s economy and caused so much misery.
Please do. It is visceral and never boring.
There is a really strong morality that runs through it.
Mind you there is also a lot of foul language plus a darkly comic element about it to and you might find yourself laughing (I did).
There is a character called Mark Baum in the film whom I think you will have a lot of empathy with Richard.
Enjoy.
I haven’t seen Margin Call (I will check it out – thanks). What is important to me is that the film triangulates well with pure documentaries such as The Flaw, Inside Job, Capitalism (A Love Affair) etc.
Some updates from the Federation of Small Businesses (FSB):
1. Exporting is key to small business confidence boost
http://www.fsb.org.uk/media-centre/press-releases/exporting-is-key-to-small-business-confidence-boost
INCREASED exporting has led to a rise in small business confidence, but the need for focus on the current domestic situation to boost local economic stability and growth remains a priority, according to Northern Ireland’s largest business organisation.
Today, the Federation of Small Businesses (FSB) published its latest quarterly Small Business Index (SBI) which revealed a rise in export activity (15.6%) across the UK over the last three months, and a net balance of SMEs expecting to increase their international sales over the next quarter.
Mr Mitchell concluded: “Confidence is fragile and, at a time of unprecedented political and economic uncertainty, both locally and nationally, small firms are being hit from all sides by mounting cost pressures including a hike in the National Living Wage (NLW) this month as well as an increase in the cost of fuel. Consequently, the percentage of businesses seeking to grow in the next 12 months, although slightly up on last quarter, remains below the levels seen in recent years. Our local politicians need to focus on getting the Executive working again so that business confidence and economic activity do not slump again.”
2. Small business confidence recovers despite surging costs
http://www.fsb.org.uk/media-centre/press-releases/small-business-confidence-recovers-despite-surging-costs
Maybe….
The impact of Brexit on importers/exporters to the uk is catastrophic. We will default to WTO tariffs which will likely kill some businesses unless they restructure/relocate. Anyone thinking we will have negotiated a new tariff agreement with the eu within 2 years is livining in cloud cuckoo land
News from the coal face: my Chinese son in law, now a UK citizen, imports and exports goods from China. His Chinese partners have recently told him that if the UK financial situation worsens further, they will only trade with him if he relocate to an EU country. He’s currently looking at moving his family to Holland.
That is hard
I don’t see that Osborne was wrong. It is true that he called it an ’emergency’ budget’. By the time Hammond delivered the following budget the government machinery had talked up Brexit so words like ’emergency’ were now taboo. Nevertheless Hammond did announce a shortfall in government revenue of tens of billions, so if that is not an ’emergency’ then I’m not sure what is.
Also remember that the UK economy proved initially quite resilient, the BoE pumped in billions, and we are not actually out of the EU yet.
So I’m not sure what fair criticism can be levelled at Osborne, other than telling it as it is, which we now know Brexiters don’t like. I would have preferred the positive aspects of the EU receiving more focus, but Osborne’s job was chancellor of the exchequer and he was quite right to make the warnings that he did.
There wasn’t a budget until the planned event in November
Osborne said it would be in July
And there’s widespread feeling that his wild Treasury report was a factor in people thinking the Remain campaign ridiculous – which it was on this issue
After the 24th of July it would have been politically unfeasible to hold the budget in July. But behind the scenes the BoE was taking emergency measures by pumping in money to shore up the economy.
The treasury report? I see little evidence that most families aren’t going to be worse off as a result of Brexit. And don’t forget this wasn’t just about maintaining what we had. Brexit was going to make things much better. Little chance of that happening right now.
Of course we’re going to be worse off
And yes the BoE acted
But the reality is Osborne made a fool of himself in the campaign doing project fear and it backfired at cost to us all
Well you say that Osborne made a ‘fool’ of himself, but you can’t say what it was that he said that was wrong.
It was a grim budget. Families will be worse off.
Osborne had it pretty much spot on, but the Project Fear machinery of the Leave campaign sought to ridicule him. And you seem to have bought in to it.
I could not have been clearer
Please don’t waste my time with nonsense – which is what you’re offering
Okay, got you Richard, you can’t explain how Osborne was wrong.
There have been a lot of new commentators on this blog in the last few days and most have been very welcome as it is very clear that they are seeking to partake in argument
It is equally clear that you are keen to partake in puerile abuse
You won’t be commenting again
The only certainty is uncertainty yet, as you point out, otherwise intelligent (maybe) professionals, from all political persuasions, can’t resist programming it into their projections. Maybe it’s a psychological issue reflecting the innate human desire for an increasingly complex world to be stable and ‘rational’, albeit our subconscious knows differently. Added to which there is ‘cognitive bias’ that influences even the most cautious analyst.
These days it’s hard-work being an ‘ordinary’ citizen having to rely on information that has been ‘processed’ by the PR and media machinery. In a sense it’s all ‘fake news’. Unfortunately important decisions are made based on it, which yield potentially devastating results that can contradict the original intent – as I believe those who voted for Brexit and Trump may (will) discover.
While not a direct response to your head-line, and if you’ll permit a cross-blog, I find Steven Toft’s latest blog to be insightful in terms of explaining how both the US and UK have reached such bizarre situations and why buyers’ remorse will be the historical outcome. But, hey, here I am buying into a predictable future scenario. It’s not easy to avoid, is it? https://flipchartfairytales.wordpress.com/
Happy Easter!
🙂
John appears to have the viewpoint of many Brits and other non-continentals. They only see the EU in economic terms. What they put in, what they get out (financially). For them the EU is all about the economy. It is certainly one aspect, an important one, but the EU runs far deeper than that.
It’s also about human rights, environmental protection, scientific and academic collaboration, peace, workers rights, friendship, freedom of movement, the right to live and work in other European countries, equality and so much more.
I have heard the argument that repeating bad news about the economy somehow causes that bad news over and over again. It’s stupid. The economy does not work like that. It works by millions of people doing billions of things all the time, each having an incremental effect. The UK economy was doing pretty well last year. There is a good argument that Osborne did a good job between 2010 and 2016. After the pound fell in June 2016 (and it has not recovered so it was not just a speculation thing), around £90bn was pumped into the economy by the Bank of England and that had a cushioning effect which has delayed the onset of economic crumble.
It may be that cabinet members don’t go to Tesco or Sainsbury, but the reality is that the prices of items ordinary people buy have gone up. 10% on your food bill might not matter that much to most readers of this, but if you are on a fixed income, lentils get a bit boring after while, and they make you fart.
All this negativity!
It’s as though there’s an “I wish for a recession just to prove my point” attitude with some people out there. 60% of our exports now go outside of the EU and that proportion has increased substantially in the last decade and will continue going forwards. Our growth in exports to the EU in that time has been the equivalent of treading water.
We had a record overall trading deficit with the EU of around £100 Billion in the last year. European businesses love selling to us but are a little less keen when it comes to buying. This has a lot to do with restrictive and insular trading practices within some of the biggest EU countries, they openly break EU fair trade rules but Brussels prefers to turn a blind eye.
The UK is going to go through a period of change and this may mean less growth for up to 5 years after we leave but equally it may not. The USA is seriously talking about passporting our financial services into their markets, just think about the numbers that this would involve? It could mean European finance companies not already setup in London having to do so to get access to the American market.
The USA example is just one of a whole series of trade deals under discussion.
Where the effects on European trade is concerned experts vary but a rough estimate is there will be a loss of about 25% both ways. The argument is this will hit us far more than it will the EU but then you should remember our imports are mainly concentrated on a few countries like Germany, France, Italy & Spain. They will be disproportionately affected by the divorce, for instance Germany sells £50 Billion more to us annually than we buy from them. There a lot of other potential outcomes worrying individual EU countries such as the Dutch being worried sick about suggestions we will develop our own trading port in direct competition with Rotterdam.
There are real pros and cons in the Brexit debate but to just take a “told you so” attitude every time a bit of negative news is broadcast is simply avoiding the bigger picture.
I voted Remain in the referendum because I feared for the future repercussions it would have for the country, not any longer.
About 90%+ of economists still think Brexit has serious long term implications for the UK
I think it quite fair to say so
I also accept 90%+ can be wrong
But you’d be optimistic to think so
It’s interesting how you are constantly making claims that the majority of economists don’t understand the economy and now here you are extolling the virtues of those same economists when they agree with you!
A someone selective ‘appeal to authority’!
Oh come on: all I am doing is referring to is what has been consistently reliable relatively low level data on things like credit and house prices where sources are fairly easy to track
That’s not disagreeing with economists or not: it;’s about interpreting what in this case looks like useful information on a timely basis
Cornish Bantam… you blame “Brussels” for turning a blind eye.if what you are saying is true, the UK could have filed a complaint rather than whining about it through the Express etc. Or it could be that it isn’t actually true or that significant?
You don’t see Buy British anywhere do you so.. oh we do actually.
“60% of our exports now go outside of the EU” – This is not the right statistic to be using. You need to include trade with countries that are part of the Single Market – which includes Norway, etc. Over 50% of our exports are to countries who are part of the single market. In addition to that, we need to consider countries and trade blocs that the EU has trade deals with: Canada; Mexico; South Korea; Israel; Turkey; South Africa; Eastern and South African States; Caribbean Forum States; Central American Integration System States; South African Development Community members; etc. And there are countries who the EU are negotiating with: India; Japan; New Zealand; etc. (https://en.wikipedia.org/wiki/European_Union_free_trade_agreements)
Leaving the Single Market would impact UK trade with all members of the Single Market and with all countries and trade blocs that the UK currently trades with under the terms of agreements reached by the EU. Our exports to those countries is much higher than the base figure of our trade with just EU countries, with the result that the statistic quoted about our trade with EU countries is deeply misleading.
(With regard to the issue of how fast the UK could negotiate trade deals, we must note that the halt on EU-India negotiations is partly because of UK intransigence over Indian migration.)
“This has a lot to do with restrictive and insular trading practices within some of the biggest EU countries, they openly break EU fair trade rules but Brussels prefers to turn a blind eye.” – I would like to see hard, verifiable, evidence of this. I know that it is quoted as an ‘accepted fact’ but I think that we really must be very clear on the evidence on which ‘accepted facts’ such as these are based.
“The USA is seriously talking about passporting our financial services into their markets” – You ought to say ‘The USA is seriously talking about UK and USA financial services being able to passport into each other’s markets” – and that may not be to the benefit of British financial services (http://news.efinancialcareers.com/uk-en/271876/trump-may-brexit-new-passporting-agreement/) We ought also to note that Trump may not be president for very long, and his successor may not be interested in helping out the UK. And even if Trump does remain in office, he is very fickle and unreliable.
“The USA example is just one of a whole series of trade deals under discussion.” – There are no trade deals under discussion. There is some sounding out of possibilities, but no serious negotiation has yet started. The USA shows the most promise, but I would argue that is because the USA’s president is invested in damaging the EU. We have yet to see the details of any possible trade deal that the USA might offer us. Other countries have been more circumspect in their talks with us, and have been clear on the need for the UK’s future relationship with the EU to be finalised before signing any new trade deals with the UK themselves.
“They will be disproportionately affected by the divorce” – This is not a positive to Brexit, but a negative. Damage to the economies of our trading partners will then have further impacts on our exports to them. The best outcome for the UK is for the economies of other EU countries to have as little impact from Brexit as possible so that our exports are not damaged by economic downturns in those countries.
“…is simply avoiding the bigger picture.” – The bigger picture involves understanding the interconnected nature of our membership of the Single Market and our trade with the rest of the world. The people who I see avoiding thinking about the bigger picture are those who refuse to consider that.
“I voted Remain in the referendum because I feared for the future repercussions it would have for the country, not any longer.” – I interpret this to mean that you no longer are worried about the future repercussions that Brexit will have on the UK. If I am correct, then you are a fool. There will, without doubt, be negative repercussions. The only questions are: How big will those repercussions be?; How skilfully will the British government be able to minimise those repercussions?
Forecasting in Economics is not something to punt on .. (it’s track record is understandably error prone as a field and for logical reasons). This is not to dispel the myth that there is no ‘expertise’. One of the reasons (not the only one) for the forecasting error is that if we sense a change in direction or a head wind (collectively and at gov level), we can make changes that alter that future. This is where a certain dynamism and interplay comes in between behaviour, policy shifts and economic outcomes. History tends to give us some lessons and tools to benefit from when dealing with current trends at play…
I think the spending in the UK remained high because people realised they should before the prices went up due to the devaluation of the pound. Note that as soon as inflation increased spending dropped.
Maybe I don’t credit the typical person/consumer enough, but I find it less than plausible that spending was propped up by widespread awareness of macroeconomics. But very plausible that with rosy sunlit-uplands talk in the tabloids, plus “balanced” coverage of Brexit economics from the BBC, most people simply heard no coherent warnings. But prices rising noticably has a way of capturing the attention.
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