What’s Britain’s economic future after Brexit?

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4 November
10:36
November
2016

This is tricky because we don’t know what Brexit will look like. However, there are hopes associated with Brexit that do not strike me as realistic. I would certainly think that a “hard Brexit” would have quite substantial negative trade effects and I don’t quite see Britain being able to avoid the EU regulations.

Ultimately, Britain has to export to the European Union and once it exports to the EU, whatever it produces has to comply with EU standards. The EU and its rules will not go away and it has every reason to make it expensive for Britain to participate in any aspect of the Common Market if it’s not a full member. The EU intrinsically cannot offer anyone à la carte membership, which is what the more Europe-friendly Brexiteers want. If it did, everyone would want that so it must draw a very clear line.

I would think that the cost of a hard Brexit would be enormous. If you look at the exchange rate of the pound to the dollar, it has (at time of publishing) fallen from 1.6 to 1.2, which corresponds to an increase of all import prices of 20 per cent or more. A reasonable estimate of the percentage of our consumption goods we import might be 40 per cent or so. That means that inflation for 40 per cent of what we’re consuming will go up by around 20 per cent in the next two or three years. That’s an enormous loss in our purchasing power, equivalent to around 10 per cent of people having a real wage cut because of Brexit.

No one is yet certain what Brexit will look like (Photo: Threefishsleeping)

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