A U-turn? No, Brexit is still a threat
BREXIT is no longer the biggest threat to the UK’s financial stability, the Bank of England Governor Mark Carney declared last week. He also indicated that the Bank was likely to upgrade its forecasts for the UK economy this year. Brexit champions duly popped champagne corks and hailed it as a U-turn by the Governor. I think not.
Because something is not the worst threat does not mean it is no threat at all. Equally while the economy may do better than once feared, it is still likely to fare worse than it would without Brexit. What is clear is that British consumers have taken the referendum result in their stride as numerous trading statements from retailers showed last week. Christmas was a bumper season for many – though not all – retailers. However, the willingness of shoppers, even a Bremoaning misery guts like me, to go out and spend money on a bountiful Christmas, is not enough to prove a sustainable economic boom. Indeed, it poses its own risks in the form of household debt, which is once again creeping higher.
The error of forecasters was partly to assume the public would react to Brexit before they felt its economic effects. The effects of Brexit are yet to be felt in any way by consumers, but they will be increasingly as the year goes on. Inflation is looming and last week’s news that Mr Kipling and Oxo owner Premier Foods is negotiating price rises with major retailers is just one more small signal of higher prices to come.
Holiday bookings are up, as we report opposite, and like many I am already looking forward to the chill of British winter giving way to a Mediterranean summer break. But I am under no illusions however, that come the summer I will find that my holiday pound will not go as far as it once did.
Key decisions by business on investment take months or longer to be made and to take effect and will depend on the details of Brexit. So the coming two months are likely to be crucial as we head towards Prime Minister Theresa May’s self-imposed March deadline to trigger Article 50.
A key moment will come on Tuesday when the PM delivers a speech outlining her Brexit vision. Financial markets are already gearing up for a volatile week with expectations that the pound could be further batted back and forth, by every clause and pause in the PM’s statement.
It is clear the Brexit vote did not bring the immediate financial crisis once feared and perhaps the longer term economic damage will not be as great as many warned. But even if this is so (and like the Brexit negotiations it may take years for the full effect to be visible) does this merit being dubbed a U-turn? Not as bad as expected is not the same as good.