Brexit – Did the economists get it wrong?

The Federal Trust, jointly with the European Institute of the London School of Economics and Political Science, held a workshop, funded by the UK in a Changing Europe project of the Economic and Social Research Council:

Brexit – Did the economists get it wrong?

Wednesday 29th March 2017

Panellists:

Professor Iain Begg
Professorial Research Fellow, European Institute, London School of Economics and Political Science

 

 

Andrew Smith
Independent economist and commentator; Chief Economic Adviser to Industry Forum and former Chief Economist at KPMG

 

Dr Swati Dhingra
Assistant Professor, Centre for Economic Performance, Department of Economics, London School of Economics and Political Science

 

Chaired by Brendan Donnelly, Director, The Federal Trust

 Conclusions of the Conference
  1. The overwhelming majority of professional economists were convinced that leaving the European Union would be harmful for the British economy. This preponderance of professional economic opinion had sometimes been obscured because such media outlets as the BBC during the referendum campaign last year had decided to give equal prominence in their reporting to the views on Brexit of the professional economic mainstream and to the dissentient minority.
  1. The great majority of professional economists had always stressed in their analysis that the degree of harm done to the British economy by leaving the European Union would depend on the nature of the future economic relationship between the United Kingdom and the European Union. The nature of this future relationship was still unclear and criticism of mainstream economists as over-pessimistic was therefore unjustified.
  1. Most predictions of mainstream economists related to the medium to long term after the United Kingdom had left the European Union. Very few economists had predicted tangible damage to the British economy in the period immediately after a vote on 23rd June to leave the European Union. Their predictions had almost invariably related to a more distant future, when the nature of the future economic relationship had been determined.
  1. Most professional economists believed that once the United Kingdom actually left the European Union its rate of growth, particularly in the early years, would be lower than it would have been if the UK had remained in the European Union. This prediction of lower growth than otherwise did not imply that at any particular date the UK would inevitably enter into recession, much less that recession was the inevitable immediate consequence of a simple vote to leave the European Union on 23rd June 2016.
  1. While professional economists had usually been careful and restrained in their predictions about the consequences of Brexit, a much more apocalyptic tone about the immediate consequences of a vote to leave the European Union on 23rd June 2016 had been struck by the then Chancellor, George Osborne. It was important to distinguish between reasonable criticism of George Osborne’s exaggerated short-term predictions during the referendum campaign and unreasonable criticism of the predictions about Brexit in the longer term from the economics profession as a whole.
Comment by the Chairman, Brendan Donnelly, Director of the Federal Trust

There is understandable resentment in the economics profession that their carefully phrased and well-researched predictions about the economic implications of Brexit should have been so widely misinterpreted and unfairly criticized on the basis of this misunderstanding.  The UK has not yet left the European Union and the terms on which it will do so are still unknown. It is therefore wildly premature to dismiss predictions of long-term damage to the British economy arising from Brexit on the basis of what has happened or not happened in the less than a year since 23rd June, 2016. The consensus of the professional economists present at the conference was that the predictions made before the referendum about the economic consequences of Brexit were soundly based and would prove their accuracy in the coming years if the United Kingdom left the European Union.

Some self-criticism of the economics profession and similar criticism from the audience was voiced for the profession’s arguable failure to differentiate more clearly in its predictions and projections regarding Brexit between the long and the short term. There should perhaps have been a more profound analysis by economists of the likely immediate consequences of a vote for Brexit on 23rd June: the predicted decline in the external value of sterling had indeed occurred, but the stock market had risen sharply and consumer confidence had remained relatively strong. Neither of these two latter developments was on reflection surprising, given the increased profits in a devalued sterling of large British companies trading abroad and given the limbo in which possibly destabilizing negotiations with the EU about future economic relationships had remained until the triggering of Article 50 (on the day of the conference.) By contrast, there was general  criticism from the panel and audience for the former Chancellor, George Osborne, and the rest of those leading the “Remain” campaign last year for their unconvincing presentation of the economic case for the UK to remain in the European Union.

It was probably inevitable that George Osborne and his political colleagues should find themselves needing to rely on an almost exclusively economic case in their arguments for remaining within the European Union last year. The political class and its supporters/puppet-masters in the mass media have spent the past twenty years decrying the political elements of the European Union as if it were an intrusive super-state inimical in every way to British interests. When Mr. Osborne found himself confronted with the need to win an unwanted referendum on the EU, he had no obvious other recourse than to present in the most lurid and indeed counter-productive terms the supposedly immediate and catastrophic economic consequences of a vote to leave the EU. This tactic narrowly failed and the continuing relative robustness of the British economy in the past nine months has allowed critics of the former Chancellor to make the specious claim that all predictions of future economic damage arising from Brexit have now been confounded. This, as the conference of 29th March demonstrated, is far from being the case.  It may well be that a growing sense of increasing economic problems arising from Brexit in the not too distant future was one of the reasons persuading Mrs. May to call a premature General Election while the going was good enough for her still to win this election. She will certainly be hoping that the damage from Brexit widely predicted by economists postpones manifesting itself until well after 8th June.