By Heather Cameron
‘Uncertainty and volatility’ – these were two key terms highlighted at a recent event focusing on the impact of Brexit on the economy, hosted by STEP Stirling.
Following the historic decision of the UK to leave the European Union and all the press that has ensued, it was interesting to hear from experts in the field on what they believe the true impact will be.
Speaker: David Bell, Professor of Economics, University of Stirling
Professor David Bell from Stirling University delivered the first presentation, providing an overview of the key economic implications of Brexit.
David suggested that the negative impacts from a leave vote have not materialised as predicted, noting that “the economics of Brexit has moved at a slower pace than the politics.” Many predicted that there would be an immediate impact on the economy and on consumer confidence, but this hasn’t happened. Retail sales have shown no signs of collapse, with recent research actually showing growth.
Nevertheless, David noted that things were different for businesses, which are experiencing a lot of uncertainty. He indicated that this business uncertainty has dragged UK business output and optimism to a three year low.
What is clear, is that there has been a significant depreciation in Sterling which is unlikely to be reversed in the short to medium term. David considered the implications of this, including that we are poorer, more time will be spent working to benefit smaller businesses, there is lower borrowing costs and it is bad news for pensions.
David also highlighted the issues around the UK’s deficit in goods and surplus in services and trade agreements, which are particularly complicated. To conclude, David acknowledged that negotiations will be difficult and that we will be in the same position for some time to come – with a lot of uncertainty.
Speaker: Craig Wilson, Senior Director Treasury Solutions North England & Scotland at Clydesdale Bank
Following David, was Craig Wilson from the Clydesdale Bank. He considered the impact of Brexit from a financial markets perspective.
To begin, Craig highlighted that what was surprising about the Brexit vote was that ‘the bookies were wrong’, with odds as much as 2/9 suggesting an 82% probability of a remain victory. He noted that the immediate reaction, as similarly highlighted by David, was a drop in Sterling. He said:
“We had a reaction to a recession without the recession taking place.”
Craig also highlighted what has happened since the vote in terms of GBP/Euro stats, interest rate cuts and the price of Brent oil. Interestingly, Brexit hasn’t been shown to have affected commodities as oil prices only dropped slightly and have now increased again.
In agreement with David, Craig argued that there will be a negative impact on the economy in the short to medium term. Economists have cut UK GDP growth going forward to just 1%. Craig suggested that house prices will be important because if they hold up, consumer confidence is likely to remain.
The future, however, was also emphasised as uncertain by Craig. He highlighted that there are lots of variables, both within the UK and abroad, including:
- UK data
- Public perception and consumer sentiment
- Bank of England monetary policy – will there be more cuts?
- Negotiations – timing of these, will they be positive or negative?
- House of Commons/Lords may ignore the vote
- The US presidential elections
- US interest rate increases?
- The Italian debt crisis
- Emerging markets
In conclusion, Craig suggested the one thing to take away is that so many factors will make the markets volatile.
If you enjoyed reading this, you may also be interested in our other recent blogs on the impact of Brexit:
- Hate crime 2016 – pre and post Brexit
- The Digital Economy Bill – the impact of Brexit
- EU referendum – what the think-tanks are saying
Follow us on Twitter to see what developments in public and social policy are interesting our research team.