If you believe some headlines, global economic shocks are already hitting Brexit Britain harder than other countries. Even Andrew Bailey, the Governor of the Bank of England, warned that inflation should be higher for longer in the UK and growth weaker.
The IMF, OECD and currency traders are seemingly all in agreement, which obviously also fits the “Brexit disaster” and “Conservative catastrophe” narratives.
But if you look under the hood, the evidence supporting these fears is surprisingly thin.
Based on recent GDP data, the UK economy grew by 0.8pc in the first quarter of this year, which was better than any other G7 economy except Canada. In fact, GDP fell downright in Japan, France and the United States.
Looking further ahead, between the second quarter of 2016 (the EU referendum) and the first quarter of 2022, UK GDP grew by a total of 6.8%. It is up there with France (6.9 pc) and well ahead of Spain (4.8 pc), Germany (4.5 pc) and Italy (2.8 pc). Claims that the UK economy is already 5% smaller as a result of Brexit therefore fail a basic detection test.
Admittedly, the most recent monthly data show that the UK economy stagnated in the spring. But other indicators suggest that, if we had monthly GDP data from other countries, their numbers would be at least as bad and, in many cases, much worse.
For example, the latest purchasing manager surveys, released by S&P Global, suggest that output grew faster in June in the UK than in any other major advanced economy. The real patient of Europe was Germany. Indeed, manufacturing order books and production expectations are relatively low across the euro area.
The latest inflation figures also do not support the narrative that the UK is suffering more than other countries. Our overall rates are not very different from the average for the rest of Europe or the United States. Food price inflation is actually lower in the UK than in many other countries, including Germany and the Netherlands (where it is already well into double digits). Producer price inflation is also higher in the euro area than in the UK.
Brexit pessimists must therefore fall back on “basic” measures of inflation, cutting out both food and energy.
These measures have increased more in the UK than in the rest of Europe. But that can partly be explained by the relative strength of the economy here and the UK government’s focus on helping households by supplementing their incomes rather than intervening to bring prices down.
What about foreign exchange markets? The British pound recently hit a two-year low against the US dollar. But it’s still primarily a story of dollar strength. The euro is near its lowest level against the US currency in 20 years and the Japanese yen is at its lowest level in 24 years. And given all the hype surrounding an impending pound crisis, it was perhaps inevitable that the pound would rally yesterday.
Yet some will still try to find ways to paint the UK in the worst possible light, while ignoring what is happening elsewhere. Germany provides two other examples.
First, the UK posted a record current account deficit in the first quarter of the year, which many were quick to blame on weak exports after Brexit. But Germany’s trade balance has also deteriorated sharply, leading to the first monthly deficit in goods since 1991. This deficit is explained by the surge in imports, due to rising commodity prices.
Second, the cost of living crisis is at least as bad in Germany as it is in the UK. The German press is full of stories of record inflation and impending recession. Rising poverty was already a big problem in 2021, German food banks (yes, they have those too) are struggling to cope. But 2022 looks much worse.
The French economy is also in trouble. This will particularly disappoint many British fans of France’s more interventionist approach during the energy crisis.
For example, our own TUC was quick to welcome this week’s announcement that the French government intended to fully nationalize energy company EDF, after forcing ‘shareholders’ to keep prices low.
However, the French government already owned over 80% of the company, so “shareholders” here actually means the French people, and in particular the taxpayers. The government also wiped out the company, with huge cost overruns, massive debts, factory closures and power shortages. It’s not a model anyone in their right mind would recommend.
We are therefore left with these forecasts from the IMF and the OECD. These are only predictions. And given all the uncertainties, I’m not sure I would call them more than projections.
It is also easy to find flaws and inconsistencies. For example, the OECD assumes UK GDP will stagnate from the second quarter of this year, but Germany’s economy will rebound and happily pick up again – despite mounting evidence to the contrary.
Of course, that doesn’t mean all is rosy in the UK. Obviously, this is not the case. It would also be wrong to console oneself for the misfortune of others.
But what is happening in the rest of Europe – and in the US – is important context for the problems in the UK. If you care to look, local media in other countries are at least as negative about their own economies as much of the British establishment is about ours.