Cont: Brexit: Now What? 9 Below Zero

[Darat]

Quite. Remember what happened to the value of the pound?

https://www.exchangerates.org.uk/brexit-pound-exchange-rate-tracker

 

[ceptimus]

Happy for any examples.

You must be a glutton for punishment.

• Immediate four quarters of recession. Completely wrong.
• 500,000 rise in unemployment. Completely wrong.
• Falling pound. Correct.
• GDP 3.6% lower. Completely wrong.
• House prices to fall between 10% and 18% in the two years following the referendum. Completely wrong.
• Interest rates to rise. Completely wrong.

One out of six predictions correct. Four predictions not merely wrong, but in the opposite direction to what has actually occurred. Mystic Meg could have done better, and a simple coin flip would do better too.

I'm willing to keep a similar tally of the accuracy of their predictions of what will happen once we've actually left. I guess we need to wait until at least mid-2021 before I can do that though, as we won't leave the transition period until, at the earliest, the end of 2020.

 

[Darat]

You must be a glutton for punishment.

• Immediate four quarters of recession. Completely wrong.
• 500,000 rise in unemployment. Completely wrong.
• Falling pound. Correct.
• GDP 3.6% lower. Completely wrong.
• House prices to fall between 10% and 18% in the two years following the referendum. Completely wrong.
• Interest rates to rise. Completely wrong.

One out of six predictions correct. Four predictions not merely wrong, but in the opposite direction to what has actually occurred. Mystic Meg could have done better, and a simple coin flip would do better too.

I'm willing to keep a similar tally of the accuracy of their predictions of what will happen once we've actually left. I guess we need to wait until at least mid-2021 before I can do that though, as we won't leave the transition period until, at the earliest, the end of 2020.

Evidence?

 

[ceptimus]

Evidence?

https://assets.publishing.service.g...ate_economic_impact_of_leaving_the_eu_web.pdf

For a good laugh you should read the whole thing. It will help you understand why our erstwhile Chancellor "George" Gideon Osborne quickly resigned as an MP once he saw that his side had lost - and that his ludicrous predictions could, as a result, be tested against reality.

The "immediate effects of the vote" part, section 3, begins at page 45.

There are plenty of other Project Fear documents on the web with even more outrageous and ludicrous "forecasts" for your amusement - try an internet search for yourself. But I thought I'd begin with the most official, HM Government one.

 

[ceptimus]

https://assets.publishing.service.g...ate_economic_impact_of_leaving_the_eu_web.pdf

For a good laugh you should read the whole thing - that will give you a taste of the totally wrong predictions of what will happen after the transition period.


But for the 'immediate effect of a vote to leave' forecasts, you can skip to Section 3, starting at page 45.


There are plenty of other Project Fear sources you can search for, but I thought I'd start with the most official HM Government one, as trumpeted to parliament by our revered ex-Chancellor, "George" (Gideon) Osborne - one of the key remain rats propagandists who quickly resigned once he realized that his side had lost and his ludicrous predictions would therefore actually be tested by reality.

 

[The Don]

Evidence?

You must be a glutton for punishment.

• Immediate four quarters of recession. Completely wrong.
• 500,000 rise in unemployment. Completely wrong.
• Falling pound. Correct.
• GDP 3.6% lower. Completely wrong.
• House prices to fall between 10% and 18% in the two years following the referendum. Completely wrong.
• Interest rates to rise. Completely wrong.

One out of six predictions correct. Four predictions not merely wrong, but in the opposite direction to what has actually occurred. Mystic Meg could have done better, and a simple coin flip would do better too.

I'm willing to keep a similar tally of the accuracy of their predictions of what will happen once we've actually left. I guess we need to wait until at least mid-2021 before I can do that though, as we won't leave the transition period until, at the earliest, the end of 2020.

To avoid any misinterpretation about the highlighted part, the forecast was:

Two years after a vote to leave the EU, GDP would be around 3.6% lower in the shock scenario than following a vote to remain

https://assets.publishing.service.g...ate_economic_impact_of_leaving_the_eu_web.pdf

....and not that GDP would be 3.6% lower than it was prior to the Leave vote.

What has happened ?

As a result, the Bank now calculates the total level of GDP is about 1.2% lower than it had expected three years ago

https://www.bbc.co.uk/news/business-47168866

....and that despite the Quantitative Easing, abandoning Austerity and the decision to keep interest rates low, all of which were designed to counter the effects of the Brexit vote.

 

[Lothian]

For a good laugh you should read the whole thing - that will give you a taste of the totally wrong predictions of what will happen after the transition period.


But for the 'immediate effect of a vote to leave' forecasts, you can skip to Section 3, starting at page 45.
.

If you read the whole thing you will know from section 2 that the predictions were compared to a remain vote. It is what would have happened following a leave vote if we carried on with the economic policies we were following. After the vote those policies were amended and the government poured money into the economy to try to get stability. That would not have happened on a remain vote.



The document compared the results with a do nothing approach. The government and BofE wanting to save off the effects following the vote didn't do nothing.

Only if you think the effects of quantative easing etc had zero effect, would this be wrong.

That is the way these reports work you compare to a do nothing and let the government decide how to confer the effects . Sometimes reports will have a number of scenarios covering the mitigation options but in this case that would have been too complicated.

This report says there are two ships; one heading for the open saw a second heading for an iceberg The public voted for the iiceberg ship so the captain immediately tried changing its course. That doesn't mean it was wrong to say the ship was heading for the iceberg.

 

[lomiller]

To avoid any misinterpretation about the highlighted part, the forecast was:



https://assets.publishing.service.g...ate_economic_impact_of_leaving_the_eu_web.pdf

....and not that GDP would be 3.6% lower than it was prior to the Leave vote.

What has happened ?



https://www.bbc.co.uk/news/business-47168866

....and that despite the Quantitative Easing, abandoning Austerity and the decision to keep interest rates low, all of which were designed to counter the effects of the Brexit vote.

Employment and Housing prices were also relative to what would happen if remain had won, so it’s not immediately clear that either of these were wrong.

I’m not sure what the justification for calling for both a recession and higher interest rates. The normal central bank response to recession would be lower interest rates. If there are tariffs on imports from the EU post Brexit maybe this could result in a bout of inflation as well as an economic downturn, in which case the BoE probably attacks the inflation first and raises interest rates. This would be follow Brexit itself, not just the referendum though.

 

[Mid]

Evidence?

Well on the loss of GDP compared to a remain vote most estimates put it around 2-3% rather than 3.6% so that could be technically correct (although as the Don noted others are a bit more optimistic than this), but that's not including the less than stellar economic growth seen last year. Examples include the IFS:

GDP is roughly 2.5–3.0% (£55–£66 billion) below where we think it would have been without Brexit. Based on pre-crisis forecasts and global economic performance in 2017 and 2018, we suspect the UK has missed out almost entirely on a bout of global growth, which would normally have boosted exports and investment.

And the OBR:

Studies based on synthetic ‘doppelgangers’ for the UK economy suggest that output in mid-2018 is around 2 to 2½ per cent lower than it would have been in the absence of the referendum.

 

[The Don]

Employment and Housing prices were also relative to what would happen if remain had won, so it’s not immediately clear that either of these were wrong.

I’m not sure what the justification for calling for both a recession and higher interest rates. The normal central bank response to recession would be lower interest rates. If there are tariffs on imports from the EU post Brexit maybe this could result in a bout of inflation as well as an economic downturn, in which case the BoE probably attacks the inflation first and raises interest rates. This would be follow Brexit itself, not just the referendum though.

I think that the bank was predicting a period of "stagflation".

The drop in the value of the pound and other factors would trigger a significant rise in inflation which would then be controlled in the usual manner by raising interest rates.

OTOH the lack of inward investment and a loss of favourable trading terms with a body that accounts for around 50% of our exports would lead to a recession.

The combination of a stagnant, or even recessionary, economy and high inflation would see a return to the economic conditions of the mid-70s which ended up with the highlighted results, recession and high interest rates.

The issue is that raising interest rates is "good" if the inflationary pressures are internal - i.e. too much money sloshing around the economy chasing too few goods. If the inflationary pressures are external, a sudden rise in commodity prices and/or a precipitous drop in the value of sterling leading to more expensive imports then it's "bad".

 

[lomiller]

I think that the bank was predicting a period of "stagflation".

Per my post I can see a possibility of that after a no deal Brexit, but even then it’s dependant on policy. I can’t see a the referendum itself causing stagflation.

The drop in the value of the pound and other factors would trigger a significant rise in inflation which.

A drop in currency value can provide a big economic boost, so it’s still an either or situation.

The combination of a stagnant, or even recessionary, economy and high inflation would see a return to the economic conditions of the mid-70s which ended up with the highlighted results, recession and high interest rates.

Stagflation is a fairly unique situation and I remain unconvinced you can get there just with reaction to the referendum. Assuming the UK doesn’t intact a lot of import tariffs I don’t think Stagflation is likely. Instead I expect a relatively normal looking recession and slow economic growth with continued risk of deflation.

If the inflationary pressures are external, a sudden rise in commodity prices and/or a precipitous drop in the value of sterling leading to more expensive imports then it's "bad"

This is only applies if the imports are things that people can’t do without when the price is going up.

 

[The Don]

Per my post I can see a possibility of that after a no deal Brexit, but even then it’s dependant on policy. I can’t see a the referendum itself causing stagflation.

The UK economy is a service economy where the primary driver is consumer spending. A significant reduction in consumer confidence would take care of the "stag" part of the equation.

A drop in currency value can provide a big economic boost, so it’s still an either or situation.

For sure it can, but the UK has a significantly negative balance of payments so it would tend to be inflationary whilst uncertainty over the future has constrained demand for UK goods and services.

Stagflation is a fairly unique situation and I remain unconvinced you can get there just with reaction to the referendum. Assuming the UK doesn’t intact a lot of import tariffs I don’t think Stagflation is likely. Instead I expect a relatively normal looking recession and slow economic growth with continued risk of deflation.

The UK has had an increase in inflation (from very low to quite low) and a drop in growth, though not a technical recession. Had it not been for Quantitative Easing and an abandonment of Austerity, we could easily have slipped into recession.

This is only applies if the imports are things that people can’t do without when the price is going up.

Given that the UK imports half of its food, most of its energy and almost all of its consumer electronics, I think that's a given.

 

[lomiller]

The UK economy is a service economy where the primary driver is consumer spending. A significant reduction in consumer confidence would take care of the "stag" part of the equation.

A drop in consumer demand is inherently deflationary, which is why it’s so difficult to get inflation and decreasing economic activity simultaneously.

For sure it can, but the UK has a significantly negative balance of payments so it would tend to be inflationary whilst uncertainty over the future has constrained demand for UK goods and services.

Are you sure you mean Balance of Payments? By definition, BoP must sum to zero. (in practice there is usually a small fudge factor.)

While uncertainty over Brexit does reduce demand this is offset by higher demand created by the falling pound. (Or alternatively the falling pound is what keeps demand for UK exports up and allows BoP to remain near zero.)

The UK has had an increase in inflation (from very low to quite low) and a drop in growth, though not a technical recession. Had it not been for Quantitative Easing and an abandonment of Austerity, we could easily have slipped into recession.

When these tools are applied, I would hope there is some increase in inflation, of you already have deep deep problems. Depending on how you are looking at things the whole point of applying fiscal and monetary stimulus is to keep inflation up in the target range.

The real risk of Brexit is not inflation, rather it’s that it could trigger a deflation spiral, which would likely be much worse then Stagflation.

Given that the UK imports half of its food, most of its energy and almost all of its consumer electronics, I think that's a given.

Consumer electronics are largely discretionary. Energy is a shrinking part of modern economies. Food is a more complex issue, but IMO the issue will be quality and variety not price or availability

 

[catsmate]

You must be a glutton for punishment.
<drivel snip>

,
How much did the UKGov and BoE expend to put off the economic consequences?

 

[catsmate]

Rolleyes smiley is not an argument.

It's as much as your rubbish needs or deserves.

 

[Andy_Ross]

A Brexiter from Stevenage called LBC radio Matt Stadlen show.
Apparently she goes to France every year with husband and afterAfter Jan 31 they won't be driving on the "wrong side of the road" when they go over as "EU rules wouldn't apply to English people" anymore.

 

[Lothian]

A Brexiter from Stevenage called LBC radio Matt Stadlen show.
Apparently she goes to France every year with husband and afterAfter Jan 31 they won't be driving on the "wrong side of the road" when they go over as "EU rules wouldn't apply to English people" anymore.

Got to give it to them, the brexiteers always manage to put their smarter folk forward for media interviews.

 

[GlennB]

A Brexiter from Stevenage called LBC radio Matt Stadlen show.
Apparently she goes to France every year with husband and afterAfter Jan 31 they won't be driving on the "wrong side of the road" when they go over as "EU rules wouldn't apply to English people" anymore.

Gotta be a spoof, surely? Yes? Please tell me so.

 

[P.J. Denyer]

Gotta be a spoof, surely? Yes? Please tell me so.

Probably not since previous callers to James O'Brien have passionately argued the benefits of carcinogenic colouring in jam, newspaper ink on take away food, and three prong plugs (which apparently we'll be able to have after Brexit).

If it's performance art it's long running and played to the hilt by a large cast of incredible actors from a wide range of groups.

 

[catsmate]

A Brexiter from Stevenage called LBC radio Matt Stadlen show.
Apparently she goes to France every year with husband and afterAfter Jan 31 they won't be driving on the "wrong side of the road" when they go over as "EU rules wouldn't apply to English people" anymore.

Ah the Brexiteer connection to reality...