Postscript: Brexit – Outlook for the economy

The day after I published my last blog post about a no deal Brexit, Mark Carney, the Governor of the Bank of England surprisingly announced a revision to the Bank’s assessment of the negative impact on the UK economy. For example GDP contraction was now expected to be 5.5% rather than the previous 8% forecast for the “disorderly” scenario. The impact on food prices would also be less severe. He told the Treasury Select Committee on Wednesday that the reason for the revision was down to no deal preparations by the Government. You can read more in this BBC news article:

https://www.bbc.co.uk/news/business-49585799?intlink_from_url=https://www.bbc.co.uk/news/topics/cw506d1n5m1t/mark-carney&link_location=live-reporting-story .

Carney is not saying a no deal Brexit will not be bad, just that it will be less damaging than forecast in November.

In addition on the same day I listened to a short video clip from Bloomberg featuring the Chief Economist of Deutsche Bank in which he said a no deal Brexit would not mean the end of the world. Although there would be some short term pain the long term prospects for the UK economy would be fine. It is less than two minutes long and well worth listening to.

His views accord with my own. Any investment focussed IFA will distinguish between the prospects for the short term on one hand and the medium to long term on the other whilst the history of economics and stock markets teaches us there are cycles – yes you get crashes, recessions, depressions and financial crises but they don’t last forever. Eventually recovery and a return to growth occurs. I think this is a useful counter view to the group think of politicians and journalists who only see a no deal Brexit as a catastrophe or disaster.

Finally a client of mine thought that the 3.2% weighted average tariffs on UK exports to the EU seemed low. I wrote back to her:

“The 3.2% figure seemed low to me as well but it is a weighted average, not applicable to all goods. Individual goods have different tariffs. For example lamb exports from the UK to EU will be 67% (according to the National Farmers’ Union). However the 3.2% figure is an average weighted by the amount of trade. This suggests that more larger volume products have much lower tariffs.”

I have asked JP Morgan for a source for that figure and if my understanding about trade weighted average tariffs was correct. If I am wrong I’ll post a postscript to this postscript post-haste! Have a good weekend.

The content of this blog is based on my own understanding of the UK economy and is intended as general investment information only.  Nothing in this article should be construed as personal investment advice. You should seek individual advice based on your own financial circumstances before making investment decisions.