So much for the end-of-the-world brigade, who warned the UK economy would collapse if we chose to leave the European Union. Almost two months on from our historic Leave vote, we’re showered in encouraging economic news.
Ahead of the referendum, despite endlessly reported corporate “Brexit fears”, we now know British companies kept hiring. The UK’s employment rate reached a record 74.5pc during the three months to June, according to official data released last week. Some 31.8m people were in work – 172,000 more than the previous quarter. Unemployment fell to 4.9pc of the workforce, an 11-year low.
Far from being cowed by post-Brexit scare stories, UK consumers remain buoyant. Retail sales volumes rose 5.9pc in July compared to the same month in 2015, with sales by value some 3.6pc higher. Accounting for around a third of household spending, which in turn makes up three-fifths of our entire economy, such sales are an important indicator of broader confidence.
Talking of which, while consumer sentiment dipped in July, when much of the media was in full-scale Brexitaggedon panic mode, there have been signs this month that, despite the fine weather, or perhaps because of it, cooler heads have prevailed. Surveys of households’ expectations of future incomes, which fell to 47.1 in mid-July, registered 49.8 in August. With anything below 50 pointing to a deterioration, the outlook remains cautious. But the improvement is still sharp.
While the Bank of England slashed its UK growth projection for 2017 from 2.3pc to 0.8pc earlier this month – the biggest cut in its annual forecast since 1993 – Moody’s doesn’t agree. British GDP will expand by a respectable 1.2pc next year, said the global ratings agency last week, not least due to the support provided by a lower pound.
And, to top it all, Nobel-prize winning economist Joseph Stiglitz, in a book published last week on the failings of the single currency, concluded that “the UK isn’t likely to be much worse off and potentially could even be better off” as a result of leaving the EU. That’s worth noting – not least as Stiglitz is hero-worshipped by many of the self-styled “progressive” commentators who so staunchly backed Remain.
None of this proves anything, of course. The economic implications of Brexit, a complex legal and diplomatic process that has barely begun and will take years to complete, will rightly be the stuff of debate among future historians. In the here and now, whatever the ebbs and flows of the economic news cycle, it’s way too early to tell.
Public perceptions of the economic impact of Brexit, though, both here and on the continent, will do much to influence the kind of deal the UK ultimately succeeds in negotiating with the remaining 27 EU member states. The stronger the British economy appears to be over the coming months and years, not least relative to the increasingly beleaguered eurozone, the more chance we’ll have of bending the large EU nations to our will.
There’s another reason, also, if not to unduly emphasise, then at least not to understate, any positive economic news. Since we voted on June 23rd, even the most mildly negative economic developments have been seized upon by leading members of the Remain camp and trumpeted as evidence that Brexit is bad for Britain. This constant talking down of the UK economy isn’t only damaging, being potentially self-fulfilling, but belies a deeper political purpose.
If enough discontent and economic fear can be generated about the prospects for post-Brexit Britain, many Remainers believe, then the case can be forced for a second EU referendum. To me, that would be a travesty. More British people voted for Brexit than have voted for anything in the history of our nation. Asking the population to go to the polls again, so they can do what so many “establishment” figures want and back Remain after all, is to confuse the UK with a banana republic.
Those pushing for such an outcome should ask themselves which deserves to prevail – their commitment to democracy, or their commitment to the EU. They should stop painting every economic variable in the worst possible light in order to promote a dangerous, and potentially explosive, political cause.
This column has, for well over a decade now, presented tough and fiercely independent judgments on the UK’s economic outlook. That will continue. I am in no way calling for the economic lily to be gilded, nor for anything other than clear, bold economic commentary. But I do think it’s dead wrong to spread alarm, and ignore or willfully misinterpret good news, in a tawdry bid to reverse this country’s largest ever display of democracy – one which millions of less-advantaged people, having been politically irrelevant for years, finally having an impact on a national election.
With the pressing need for objective commentary in mind, let me say that I’m concerned at the Bank of England’s recent actions – which will ultimately, in my view, prove counter-productive. The Bank cut interest rates earlier this month, of course, for the first time in seven years, from 0.5pc to a new record low of 0.25pc. The UK’s quantitative easing programme was also restarted, with the Bank committing to purchasing another £60bn of bonds over the next six months, extended now to include corporate bonds, on top of the £375bn of QE already implemented since March 2009.
All this strikes me as completely unnecessary, and potentially extremely damaging. A quarter point cut makes no difference when rates are already at rock-bottom, only 30pc of UK households have a mortgage and over half of those are on fixed rates anyway. The Bank acted, we’re told, to counter fears about Brexit. Yet it strikes me that many of those fears are woefully premature, if not concocted.
These seemingly endless years of QE and ultra-low interest rates are storing up enormous dangers. Far from generating sustainable growth, QE just keeps weak banks alive, when they should be restructured, while starving new productivity-boosting firms and projects of much-needed investment. Forced to chase yield, meanwhile, large institutional investors have invested heavily in over-valued equities and other bubbly, crash-prone assets.
QE was supposed to be an emergency measure in the aftermath of the sub-prime collapse. Eight years on, with emergency measures no longer needed, it has become a lifestyle choice. Our financial elite likes QE, as it protects systemically weak too-big-to-fail banks, and boosts the value of stocks the wealthy already own. And Western governments like QE as, by keeping government bond yields artificially low, it allows them to keep borrowing, so avoiding tough decisions.
The result of QE, though, is that there’s now a massive £13,000bn glut of bonds world-wide that are generating negative yields. In terms of asset allocation, that’s a disaster – for both productivity and growth. On top of that, of course, QE is extremely regressive, and will continue to hammer ordinary pension plans and other individual savers.
The UK’s Brexit vote is now being used to justify a return to myopic, wholly unjustified stimulus measures. Why cut interest rates even more just as inflation is picking up? Why do more QE, and abandon attempts to live within our fiscal means, amidst growing market nervousness about excessive funny money and debt? It will simply cause further alarm.
We’re way past the point where the negative effects of QE are out-weighing any benefits. Brexit in itself won’t cause a loss of confidence in the UK economy. But this ill-founded policy response to Brexit just might.