Brexit Flashcards
Week 8
Illustrate what much of the forecasts about Brexit depicted
- Banks, economists, universities and other institutions made forecasts on the Brexit impacts
- Looked mainly short-term
- Forecasts are only as good as the model assumptions and data
What are some of the impacts of Brexit?
- Consumer and Business confidence fell
- This would therefore mean that spending and investment would fall
- EXR/Trade impacts
- This is all underpinned by political, social and economic uncertainty
What was forecast opinions on Brexit? What did LSE and HMT say about the fall in GDP and household loss?
- Most said a negative impact on the UK
- LSE predicted -1.3% and -2.6% (FTA Vs. WTO)
- HMT said it would cost families £4,300, GDP would fall by 3.6%, the £ would fall by 12% and unemployment would rise by 500,000
- They were too negative due to the assumptions of no policy response and enacting Article 50 immediately
Why were HMT’s assumptions wrong?
- Cameron took 10 months to enact Article 50- showing the surprise in the vote result. If this was enacted immediately, it would have cause even more uncertainty
- BoEngland did much more monetary relief: Carney’s QE boosted growth by 0.5-1% over 2 years
What fiscal and monetary measures were taken?
- MONETARY: Rate cut (0.25%), pumped in £60bn in QE, £100bn in funding to banks, £10bn in electronic cash
- FISCAL: £73bn more borrowing over 3 years (Chancellor increased this by an additional £25bn)
Which forecasts were the best?
- Bank of England, OBR and Consensus were all decent
- Low activity in deviation because nothing changed much until March 2017 [Business as Usual]
- EfB forecasts got more and more inaccurate
What happened to the exchange rate as a result of Brexit?
- On referendum night, £ dropped from $1.50 to $1.33- the BIGGEST drop in 4 major currency since 1970s
- An export boom might occur, but hasn’t as of yet
- Reason for drop: Worse trade relations and worse future prospects for the UK
What happened to the inflation rate as a result of Brexit?
- CPI inflation began to rise, because imports looked more expensive
- Subsequently real wage fell due to increased CPI inflation
- After referendum, UK GDP and inflation was relatively worse off compared to CPI
- £400 cost to households (not necessarily all Brexit)
What happened to GDP as a result of Brexit?
- OBR forecasted 7.1% pre-referendum of lost growth, actually 5%
- Assumption about 2-3% lower because of Brexit
- Growth divergence shows poor performance
What happened to the employment rate as a result of Brexit?
- Employment performed well
- Steady growth in all employment (LM)
- Alot of that from little change
What happened to business investment as a result of Brexit?
- Business investment also grew, but at a slower rate than believed
- Post Article 50 saw a fall, brought uncertainty
What happened to FDI as a result of Brexit?
- Inward and Outward FDI fell by ~11-19% overall
- Jobs created as a result fell, i.e. Toyota, Honda pulled out and invested less
- Partial uncertainty- thought of increase in tariff
What are some Longer-Run Brexit implications?
- Largely dependant on relationship with Europe, ranging from a WTO no deal or a Customs Union/Single Market
- Tried to account for key areas; trade, investment, immigration, productivity
- Brexit likely will have a greater impact than COVID (4% Vs 2% [OBR])
What happened to EU-UK trade agreements?
- UK had a TCA: No tariff or quotas on goods and services
- UK is out of the Single Market / Customs Union
What did NIESR say will be harmed the most? What else did they say about the LR impacts?
- Trade, Investment & productivity will be harmed as a result of Brexit
- Negative GDP impact of around 5-6% from 2025
