It’s the Brexit Uncertainty That Matters

It could be that Brexit will blow the British economy entirely off course into us being just some third rate offshore islanders peering over at the wealth and riches of the continentals. However, it will be true that uncertainty about what will happen will damage our prospects.

At some point – arguable about when, certainly – the damage from the uncertainty will be larger, because it is cumulative, than any damage from the actual process itself. There does come a time when any decision is better than none, even the wrong decision being better than continued uncertainty.

I would argue that we’re already past that point with Brexit. We don’t know whether it’s going to happen, we don’t know the terms if it will. This has been going on for three and a half years now, that’s a lot of uncertainty reducing business investment:

A Tory victory in next week’s election would unleash a wave of investment and deal-making, analysts and bankers have said – ending a year-long slump in corporate spending and boosting wages and employment.

Despite months of confusion over Brexit, the Conservatives have emerged as the clear favourite among businesses as bosses prepare to spend billions of pounds sat on the sidelines in anticipation of a Tory government with the power to end Westminster’s stalemate.

The Bank of England estimates that non-financial businesses have roughly £423bn in cash waiting to be used, up £70bn since the referendum.

Resolve the uncertainty and at least some of that will be spent. Business investment is the most variable, over the economic cycle, of the components of GDP and is usually considered to be the driver of that business cycle. Raise it and we enter, again, the sunlit uplands of decent growth.

OK, this is just someone in favour of Brexit talking their own book. Except the basic analysis is indeed correct. The question is only how correct? Is the current uncertainty more damaging than, say, a move to WTO terms? I would say yes but that’s the only place where personal opinion is tipping that balance. That uncertainty will have, purely because uncertainty, an effect is true. That at some point it will be greater than the effects of the act itself is also true. When is opinion.

It’s not just me saying it either, Goldman Sachs is too.

All of which does lead to a lovely possible future. So, we Brexit in January and yes, we end up with a ding to the UK’s terms of trade. That’s bad. And that’s what has been used to insist that we’re going to have a terrible collapse in the UK economy for our temerity in wanting to leave the project. We also get the lifting of the uncertainty and thus a boom in business investment. That grows the economy. And it’s possible – my insistence is it will but in theory only it’s possible – that the effect of the lifting of the uncertainty is greater than that of the change in the terms of trade. Traffic jams at Dover and all.

Meaning that Brexit is coincident with a boom in GDP growth for the UK economy. Which is nice, of course it is. But the true joy is that it’ll properly piss off all those like Willy Hutton et al who have been claiming the opposite. And let’s face it, pissing off Willy Hutton would be worth many things, up to and including leaving the UN let alone the EU.