MarketLine Blog

Brexit skepticism and predicting the unpredictable

In a bizarre confluence of polarized opinions battling amidst the wanton exposition of misinformation by careerist politicians, the UK has voluntarily plunged itself into a prolonged period of economic and political uncertainty by voting to the leave the European Union.

The Prime Minister has resigned, any potential successor from the Leave campaign lacks public credibility or electability, and the Chancellor claims to have no responsibility for delivering a plan for the country in terms of how to navigate and exploit the proposed exit. All those currently in power are willing to do is steady the ship as best they can prior to the in-house election of a successor to David Cameron.

The conflation of Euro-skepticism with anti-Europeanism and at times outright xenophobia had, very disturbingly, been a key area for garnering votes for the Leave campaign prior to the referendum. However, given the resoundingly positive economic and cultural benefits that migration has had for the UK and the need for the UK to have access to the single market, which only comes with the acceptance of free movement of labor and capital, it is highly unlikely that immigration will be curbed in the draconian fashion that some may expect.

The Leave campaign has also been distancing itself from claims it made about the amount of investment it would make in the NHS following a vote for Brexit. Any campaign that exhorts a will to break up collectively funded institutions that attempt to protect the well-being of the individuals they serve is unlikely to heavily invest in something like a publicly funded universal health system. Moreover, the Leave campaign was more a movement focused solely on achieving Brexit than a clear plan as to what to do once that goal had been obtained.

By resigning, David Cameron has given his party some breathing space in order to organize informal exit negotiations and in contrast to the thoughts of some commentators, he may be attempting to give his successor a free-ticket for the next general election rather than a poisoned chalice.

At a time when all of this confusion and turmoil is going on in the ruling party, many of the opposition MPs led by Jeremy Corbyn have strangely decided to press the self-destruct button by resigning from the shadow cabinet and passing a vote of no confidence.

Whoever takes over as Prime Minister (my bet would be Stephen Crabb) has a number of options in relation to the referendum. Most likely, they will attempt to pass a two-thirds majority motion in the House of Commons that there should be an early parliamentary general election and thus attempt to obtain a democratic mandate for any informal negotiations that may have been carried out prior to that time. They will then trigger Article 50 of the Lisbon Treaty.

The traditional forecasting methods of statistical extrapolation based on historical trends and patterns go out the window during these sorts of events. Decision makers must rely more on economic theory and expert opinion to guide them through turbulent times such as these. So far, as should therefore have been expected, the Remain campaign forecasts taken from expert economists and independent institutions highlighting the negative impact of Brexit have been the most accurate in the short term.

The Leave case makes two fundamental miscalculations about future economic conditions. Firstly, it assumes that any new deals that the UK may obtain with the rest of the world will not be matched by the European Union. In effect it assumes that the EU will not change as a result of Brexit and not obtain the types of trade agreements with emerging economies that the UK desires. Secondly, the Brexit vote will either make the remaining members integrate further and create a stronger Europe with which the UK cannot compete or it will derail the European project and create a weaker Europe from which the UK will suffer economically.

Posted in Economy.

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