Brexit was quoted as being the financial equivalent of doomsday for Britain’s economy. Every economic pundit worth his/her salt predicted dire consequences for Britain. Fear mongering was rampant, and memories from the Great Depression were invoked. However, a quarter into the Brexit all this has turned out to be mere propaganda. The Bank of England has come out of this test with flying colours. Not only is the British economy afloat, but it has also kicked into high gear with England defying the possibility of a recession and registering record growth.
Doom and Gloom Predictions
London was a major contributor to the economy of Britain. London is a financial nerve center of the world. This nerve center brought in tremendous revenue since every big investment banker had set up shop in this city. Brexit would change all this.
An economy which employs restrictive trade policies cannot really be a center for global finance and investment. As a result, doom and gloom predictions were rampant. People assumed that these financial behemoths would move out of Britain. The tax revenue and employment opportunities that they create will be lost. This will be a major blow to the British economy and will start a downward spiral that will have potentially detrimental effects on every sector in Britain.
The reality has been very different. One-quarter into Brexit, few financial giants have decided to relocate out of London. It is still the financial capital of Europe. Relocation is not totally off the cards for these big banks. The economy has seen no effects as yet. However, the threat still looms large!
Rising Services Output
The British economy has shown that it is not entirely dependent on the financial sector. Amidst fears of a slowdown in this sector, Bank of England had already made plans to counter this slowdown with growth from other services. Services such as telecommunication, education and even entertainment have recorded very high growth. In the absence of a fall in the financial sector, this growth has created a new financial record of sorts. Instead of falling off a cliff, the British economy seems to have done the opposite and taken off after the Brexit
The pound sterling was one of the most valuable currencies in the world prior to the Brexit. This meant that the British population could import goods very cheaply. For years, this had been the single biggest issue facing British manufacturing sector.
The Brexit came as a blessing in disguise. The pound sterling plunged to record lows. Many speculators and Forex traders were caught on the wrong side of this and lost an immense amount of money. However, the British manufacturing sector emerged as the winner. A cheaper pound sterling makes it more expensive to import. As a result, imports have gone down, and domestic production has gone up. A further fall in the sterling may even encourage exports.
Slower Wage Growth
The massive propaganda surrounding the Brexit has actually worked in the favour of British businesses. Employees are scared about their job security. They are therefore not demanding bigger wage hikes. Therefore the cost of goods manufactured in not increasing and inflation is under control. There have not been any major layoffs in Britain as of now. Given the growing economy, they do not seem to be on the cards either.
Investments on Hold
The British economy has seen resilience in consumer spending patterns. However, businesses are much more cautious. There have been no major investments made in the British economy post the Brexit. The bigger businesses want to wait and watch as the economy settles down. All seems fine as of now. But it seems too early to predict whether or not Brexit will have any further consequences. Big corporations take time to make investment decisions. A more certain outlook about the British economy is required before any decisions can be made.
Critics believe that this illusion of growth has been created due to the extremely lax policy followed by the Bank of England. The interest rates have been kept at 0.25% for very long. This is exactly like the monetary policy that created the subprime crisis. Hence, what appears like growth now may not actually be growth. Instead, it may be the beginning of an economic catastrophe. Also, since Bank of England has already used up all its tools, they will have very little recourse left in the event of a slowdown.
The doom and gloom predictions have now been replaced by rainbows! The IMF has revised its outlook for the British economy. The rate of growth for the financial year 2017 has now been pegged at 1.9%. This is the highest rate for any G-7 country in the forthcoming financial year.
Brexit has not even caused a fraction of the damage it was said to be capable of. However, this may be too early to predict. The British people are hoping that this Bull Run continues for a longer period of time so that their economy can revive itself before any major challenges are thrown its way.