Wise old saying: “Be careful what you ask for, you might just get it.”
Perhaps someone should have reminded the British of this before they voted, or even began the referendum process. The result was a surprise to the pollsters, the leader of the “Leave” campaign, and many of those who voted to exit.Its not clear what happens next or what the repercussions will be. Britain’s economy is so closely tied to the EU that its impossible to say what will happen if they try to disentangle it. Similarly, the legal implications are too complex to predict at this point in time. It is also possible that Article 50 will not be implemented. The vote, after all, was not binding, only advisory.
Below is a sampling from list of the possible economic consequences to the BREXIT vote published by the Globe and Mail:
- Britain’s economy would grow more slowly outside the EU than if it stayed in, according to a raft of projections made in the run-up to the referendum by the government, the Bank of England, think tanks, international organizations and hundreds of academics.
- The fall in sterling, which on Friday hit its lowest level against the dollar since 1985, could help exporters – although demand in many countries around the world remains weak.
- The OECD and the IMF have said a Brexit will hurt the rest of the EU and affect other countries further afield. The OECD has said output in the EU, not including Britain, will be around 1 per cent weaker by 2020 than otherwise if Britain left bloc, a palpable hit for a region which is growing only weakly.
- The OECD has said there could be deeper economic fallout if a Brexit undermines confidence in the future of the EU, a scenario not included in its forecasts.
- BoE Governor Mark Carney responded to the vote quickly, saying the central bank was ready to provide 250 billion pounds of additional funds to support markets. He also said the Bank will consider additional policy responses in the coming weeks.
- Before the vote, Carney said it was too simple to assume the Bank will cut interest rates from what is already a record low of 0.5 per cent to cushion the economy after a Brexit vote. The BoE says it would have to weigh up slower growth against higher inflation caused by a weakening of the pound.
- Britain racked up its biggest current account deficit on record last year, equivalent to 5.2 per cent of economic output. The shortfall reflected higher flows of dividends and debt payments to foreign investors than similar flows into the country, as well as its wide trade deficit. Mr. Carney has said a Brexit could test the “kindness of strangers” who fund the balance of payments deficit.
- Mr. Osborne said during campaigning for the referendum that he would have to raise taxes and cut spending if Britain voted to leave the EU to prevent the slowdown in growth from hurting his push to bring down Britain’s still large budget deficit. After Mr. Cameron’s resignation, it was not clear if that plan would be maintained.
Sterling and gilts
- Sterling plunged to a 31-year low on Friday, its biggest fall in history. George Soros, the billionaire who earned fame by betting against the pound in 1992, said it could go as low as $1.15. On Friday, it was trading at around $1.39.
- Most forecasters have said Britain’s unemployment rate – now at a 10-year low of 5.0 percent – would rise after leaving the EU, although after the financial crisis Britain managed to avoid job losses on the scale seen in other countries.
- As seen after the crisis, wages will probably bear the brunt of any post-Brexit slowdown, according to the IMF. Britain’s National Institute of Economic and Social Research think tank estimated real consumer wages will be between 2.2 per cent and 7.0 per cent lower in real terms by 2030 than if Britain had stayed in the EU.
- World leaders from the United States, Japan, Germany and France have warned Britain that leaving the EU would hurt its standing as a global trading power.
- U.S. President Barack Obama said Britain would join “the back of the queue” for talks with the United States. This week, French President Francois Hollande said leaving the EU would put at risk Britain’s access to the single market.