Article 50 – 29th March 2017

So, we now know the date when the starting gun gets fired for leaving the EU, but what kind of race is it? We also know it’s to be run over two years, with quite a few runners all jostling for position. However, we don’t know how it will end.

The truth is that although nobody can predict economic outcomes with any accuracy, even at the best of times, it does not prevent speculation on what the fall out will be.

At this point, it is interesting to note that on June 24th 2016, the markets were spooked as the day dawned and the UK realised that it had voted to leave the EU.

All the doomsayers at the time have not been proved right (as yet anyhow and things can change quickly and unpredictably, for example, consumer confidence and spending). In fact, things have unfolded quite differently to what was foretold, for the UK economy has proved resilient.

The FT recently gave its six reasons for this:

  1. Political turmoil was avoided by the early resignation of David Cameron and the swift anointment of Theresa May and that gave stability.
  2. The Bank of England promised action but was not required to do much fire-fighting as, for example, the banks had not cut their lending and capital had not taken flight as had been predicted.
  3. Monetary and fiscal policy worked to boost confidence – interest rates were kept low and punishment taxes were not introduced.
  4. Global growth was faster than expected.
  5. UK consumers kept on spending.
  6. Theresa May’s January 17 speech marked a turning point – after it political opposition all but faded.

Added to this has been the extraordinary effect of the fall in the pound – the stock market surged upwards as companies saw exchange gains from their international trade and the UK became an attractive place in which to spend money.

An unexpected boost was given to certain industries. For example, drugs companies, one of Britain’s most successful export sectors had issued stark warnings about leaving the EU, but more recently, some have felt that a hard Brexit could improve their profit margins for two reasons:

  • (a) they would be protected from tariffs under World Trade Organisation rules; and
  • (b) they stand to gain from a further fall in the value of the pound.

If drug companies can remain a member of the European Medicines Agency, that would help too.

The next two years will be so full of predictions we won’t know who to believe, but they will probably all in time prove to be wrong.

Published on Mar 23, 2017 by Neil Thomas