Brexit will prove to be the Great Escape

While some people feel elated and others despondent, perhaps the most widely shared feeling after the referendum is anxiety about our economic future. This is understandable. Yet there is no cause for alarm. In the short term, there may be some modest turbulence but things are going to work out just fine.

Some commentators have suggested that the fall in the stock market is a harbinger of hard times ahead. In fact, the reaction from financial markets has been muted. The London stock market initially fell by about seven per cent but then rallied to finish only slightly down.

Anyway, the stock market is a poor guide to economic prospects. If it accurately reflects anything, it is the prospects of the big, established companies with international interests. Some of these may well be short-term losers from Brexit. On the whole, the gainers will be consumers, smaller businesses focused on the UK economy and businesses as yet unborn. These aren’t represented in the stock market.

Similarly, the pound initially fell quite sharply but then rallied to finish only slightly lower.

Yes, this will increase the cost of foreign holidays and imported goods. But the increases will be modest. And there are more important considerations. The lower pound will make British-produced goods and services more competitive and this will boost employment and incomes.

Admittedly, it is possible that the economy will experience a period of softness. In fact, it may have been headed for slower growth anyway. But if the economy does slow, there is no good reason for this softness to be extreme or prolonged. And the policymakers can lend support. The Bank of England may cut official interest rates, which could easily fall to near-zero. I recognise that this would be unwelcome news to savers but it would probably help to boost aggregate demand.

During the campaign, the Chancellor warned that Brexit could oblige him to raise taxes and cut spending. This was a huge error. He should now distance himself from those remarks and reassure people. If the economy does not deteriorate then the fiscal position probably won’t either. If it does deteriorate then he is ‘There will be losses. But they will be contained and I am convinced that we can emerge from this better off ’ not forced to do anything. He has a choice. I would do nothing and just let the borrowing numbers rise a bit. If he deems this too dangerous then he shouldn’t clobber UK consumers but should rather suspend the foreign aid budget which would immediately save about £12 billion a year.

Listening to the imploring tones of the Remain campaign, you could be forgiven for not realising that most of the world does not belong to the European Union. And most of it is doing pretty well. Meanwhile, the EU itself has been doing badly. In southern Europe, thanks to the euro – the real self-inflicted wound – there is an economic and social catastrophe.

In the later stages of the campaign, umpteen economics professors including several Nobel Prize winners joined the throng of official bodies at home and abroad warning of the consequences of Brexit. If I needed any reassurance that we should leave, this provided it. Economics is not physics. The big practical economic issues are not about higher mathematics or sophisticated models but judgment and balance. I am afraid the consensus of economic experts has an extraordinary record of getting big practical issues horrendously wrong.

In 1931, the UK was forced off the Gold Standard. The economic establishment warned that this would be disastrous. Instead, it ushered in the fastest period of growth in our industrial history. In 1992 the establishment warned that we had to stay in the European Exchange Rate Mechanism (ERM) or catastrophe would be unleashed. We were forced out and the economy blossomed. In the late 1990s we were warned by Uncle Tom Cobbleigh and all that we must join the euro – or else. We didn’t – thank goodness – and we prospered. The weight of academic and establishment economists did not foresee “the death of inflation” or the financial crisis of 2008-9. A prolonged period of modesty from them would be appropriate.

Even though things will not change overnight, the UK has just made a momentous decision that is bound to cause some dislocation. This will inflict some losses. But they will be contained and I am convinced that we can emerge from this better off.

The EU is a failing construct. Before long, it is going to unleash a series of initiatives that have been held up, pending the referendum. In true EU fashion, these will range from the bizarre to the downright dangerous.

This will make it crystal clear how wise the British electorate has been yet again. We have escaped just in time.