UK 2017-2025? Post anaemic recovery, post Brexit, lousy post

So, at last, George Osborne has just cancelled his appointment with eliminating our deficit, ie having a budget surplus, by 2020. I’m not sure if that means he has come to believe in textbook macroeconomics, is appreciating the limitations of neoconservatism, or is just dealing with the reality of the impossibility of the task given what is likely to happen to the UK economy post-Brexit.

Some people are saying that if the UK economy really tanks as a result of Brexit there will be a need for more austerity. God help us. It’s more the case that there will be a need for really massive stimulus. But here is what George Magnus thinks will happen, somewhat mangled by me: a UK ‘demand shock’ recession will be fully evident by end 2016 and through 2017, with rising unemployment and more spending cuts but rising fiscal deficit from the ‘fiscal stabilisers’ of social services support and as the government also tries to stimulate somehow with infrastructure projects, along with the possible removal of OAPs ‘triple lock’ on their pensions, maybe even removal of the alleged ‘ring fence’ for NHS. All this will probably erupt into the open in the (new?) Chancellor’s Autumn Statement later this year.

But, more significantly, there will be a substantial ‘supply-side shock’ through 2020-25 as business investment, particularly from foreign companies (the likes of Toyota, Nissan, Siemens, etc) is diverted elsewhere, while investment spending from UK companies is reduced, along with housing starts etc. If there is lower immigration (or, indeed, movement of immigrants to their home countries or elsewhere) this would further weaken the supply-side of the UK economy. Any ‘total factor’ productivity benefits from supply chain integration with other EU countries will evaporate, making even some UK-made goods more expensive at home and reducing any benefits of a shrunken pound to our exports. The average Brit will be noticeably poorer than now.

And, by the way, any ‘money printing’ where there is a supply-side recession could well cause significant inflation, unlike with the demand-side recession we have recently encountered.  Whether any government is equipped to recognise when one type of recession melds into another type of recession is a moot point.

George Magnus is more dispassionate than I am, because he does not mention social unrest, which will likely become significant. Among other things there will likely be a further rise in active racism.

Another equally  dispassionate blog on the Triple Crisis site, while pointing out very real negative economic effects of Brexit, indicated that they will not necessarily be quite as bad as some have suggested. However, it is less sanguine about the inevitable accompanying rightward shift of Conservatives in power in the UK (more pro-austerity, more pro privatisation of NHS) and of the negative knock-on effects on the EU itself and on the euro.

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About DMO

Market Research Consultant View all posts by DMO

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