When John Maynard Keynes observed that “animal spirits” were a fundamental part of the way economies performed, he probably didn’t have in mind British bulldogs.
But when Britain voted in June last year to leave the European Union (EU), the Daily Express – cheerleader for Brexit – editorialised that it was a victory for the “British bulldog spirit” and that it was this quality of the British people which would ensure that Brexit ushered in “a golden age of global freedom”.
As Britain comes closer to the formal declaration of its intent to leave under Article 50 of the EU Treaty, the Brexit crowd are becoming increasingly convinced that their cause is not only being proven to be worthy but is starting to reveal the elites which opposed Brexit – especially economists – as being charlatans.
End-of-year surveys of the key sectors of the British economy revealed a better performance in the second half of 2016 than had been forecast by the Treasury and the Bank of England. Together, they pointed to the British economy entering 2017 with considerable momentum.
The data are being used to justify the claim of Brexiters that warnings of post-Brexit economic calamity had been based on nothing more than a dishonest scare campaign.
… The mood of triumphalism and “we showed you” that has been boosted by the most recent economic data, might prove to be not only premature but dangerous.
Just why the post-referendum performance of the British economy has been significantly better than the official predictions is an open question.
The devaluation of the pound since the vote is obviously one factor, together with the fiscal and monetary loosening that the official policy makers implemented precisely to try to avoid their gloomy predictions being realised.
In this sense, the policy makers have done well.
As Bank of England Governor Mark Carney told the parliamentary Treasury Select Committee this week, as he asserted that the bank’s actions had reduced the dangers to Britain’s financial stability, the job of the policy setting authorities is to prepare for the worst.
Warning of dangers ahead and setting policy to prepare for the aftershocks of the Brexit vote was surely more important than for the Bank of England or the Treasury to be able to boast that their gloomy forecasts had been spot on.
To what extent “animal spirits” might have played a role – that is, that Britons have done what the Daily Express had urged them to do and gone out of their way to show that the doomsayers had underestimated the “British bulldog spirit” – is impossible to say.
Consumer confidence has picked up, but from very low levels. British consumers may be a little less anxious about their prospects, but anxiety remains.
While economists cop a battering from Brexit activists and the popular press that is their voice, they are not cowering under the desks and waving white flags.
The start of the New Year sees analysts and forecasters working flat out to come up with meaningful explanations of what is happening and what is likely to happen when the reality of Brexit begins to take hold.
One of the fundamental problems so far is that nothing has really happened since the June vote and the May Government has given very few clues about what will be the nuts and bolts of the Brexit operation.
On even the most basic issues – what sort of trading relationship the UK will seek to have with the European Union – confusion reigns.
If it is to be a full exit from the single market and the customs union – as May seems to be pointing – the prospects for Britain being able to quickly negotiate a free trade agreement with the EU appear not to be promising. If that were to take up to a decade, as a senior Canadian trade official has warned, speaking from his experience of the Canada-EU agreement, the challenges facing the British economy start to look daunting.
Against these concerns, the mood of triumphalism and “we showed you” that has been boosted by the most recent economic data, might prove to be not only premature but dangerous.
Some economists (if you are still prepared to believe that they have a reasonable idea of what they are talking about) are concerned that the narrative emerging – of Brexit being only a minor problem for the British economy – is leading to dangerous complacency.
The hubris of the Brexiters – especially if it infects Theresa May’s cabinet – might encourage the May government to conclude that the performance of the British economy since the referendum means that longer term problems are also likely to be much less serious than predicted. That could lead to serious policy miscalculations.
By adopting the approach that they did – assuming the worst and setting the levers of policy to deal with it – Britain’s official policy makers have clearly helped avoid the worst.
It would be a huge mistake to conclude that, because a bad start to the post-Brexit vote has been avoided, the “golden age of freedom” is now just a bit of “British bulldog spirit” away from being realised.
by Geoff Kitney
Headline photo credit: Futurilla/Flickr
Used under the terms and conditions of Creative Commons license
