EC Meeting Papers January 2018

But buyer’s remorse strategy required the UK to fall into recession and it has not come remotely close to doing so. The economy’s performance has been lacklustre – especially in comparison with other major developed countries – but buyer’s remorse would have required the economy to contract sharply and for unemployment to rocket. Something equivalent to 2009 – when the economy shrank by more than 4% – might have done the trick. Instead of which the economy is growing slightly below its long-term trend and unemployment has fallen to a 42-year low. The absence of economic Armageddon has simply reinforced the lack of trust in expert forecasters. The stickiest patch for the economy since the referendum was in the first half of 2017, when inflation rose sharply as a result of the depreciation of the pound triggered by the Brexit vote, and even then growth averaged 0.3% a quarter. Since then, things have picked up a bit and, with inflationary pressures abating activity, is likely to remain reasonably firm in 2018. Expectations for the global economy are being revised up and that will help UK exporters of both manufacturing goods and services. Some of the exuberance in stock markets is froth, but one thing can be said with confidence: 2018 is not going to be another 2009. The tide turned for the global economy around the time of the Brexit vote and the upswing will continue for some time yet. There are a few reasons for the changed mood. Prolonged stimulus in the form of record-low interest rates and the money-creation process known as quantitative easing has been one factor. Another has been the improved financial position of the banks. A third has been the natural rhythm of the business cycle, which means that even cautious firms have to start investing because their existing equipment packs up or becomes obsolete. For all these reasons, animal spirits started to revive. Firms that had made it through the Great Recession decided that things were going to get better rather than worse. They got fed up with being fed up.

UK economy in 2018: steady growth tempered by Brexit politics

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This does not mean that the world has been magically transformed and that all the problems that have dogged the past decade have magically gone away. Far from it. Those deep structural problems – the over-reliance on debt to support consumption, a lost decade of productivity growth, growing income inequality – have not gone awayand are merely being disguised by a strong cyclical upturn. A period of solid growth creates a more benign climate in which some of those weaknesses can be addressed. It remains to be seen whether the opportunity is taken.

That is particularly true of Britain where the big story of the past decade has been dismal productivity. Had growth in output per head since 2008 continued on its pre-recession trend, living standards would be about 20% higher by now. Not even the most pessimistic predictions for the long-term impact of Brexit expect it to be that costly.

All of which brings us to the final problem with the buyer’s remorse theory: its proponents have spent so much time banging on about how terrible Brexit will be that they have neglected to come