Why the British economy has done better than expected since the Brexit vote

By C.W.

CHAOS was predicted. Following Britain’s vote to leave the European Union (EU) in June 2016, most economists believed that a recession was imminent. A government study published in the run-up to the referendum forecast that house prices would fall quickly, by up to a fifth, and that unemployment would rise by over 800,000. But there has been no recession. It is true that Britain has slipped down the international league tables of GDP growth since the Brexit vote, but growth in both 2016 and 2017 still averaged around 2%, roughly similar to 2015. Furthermore, house prices are steady and unemployment has dropped to a 42-year low of 4.3%. Disaster has been avoided. What went right?

The concept underlying the blood-curdling predictions before the referendum was “uncertainty”. No one has the foggiest idea about what Britain’s post-Brexit trading relationship with the EU will look like. Economists worried that heightened uncertainty would prompt households to rein in their spending and businesses to put investment plans on hold. With the benefit of hindsight this looks naive. Leave voters got what they wanted, so why should they cut back on spending? And for Remainers, Brexit remains some way off: the country’s status within the customs union in 2020 is a distant worry for the average Briton. Meanwhile, Britain remains an attractive place for foreign investors, in part because of its trusted legal system and low rate of corporation tax.