Chris Giles reckons that uncertainty over how Britain leaves the EU will not be enough to cause a downturn.
[...] Corporate uncertainty over the way Britain might leave the EU is insufficient to cause a significant downturn. Business investment fell in 2018, but it accounts for less than one-tenth of gross domestic product and building offices, kitting out a supermarket, updating software or buying vans does not end with Brexit. The postponement of big investment decisions is highly unlikely to do much more than damp economic growth figures.
A no-deal Brexit would raise big questions about the UK’s infrastructure and its system of distribution. Some supply chains would break and disruption is likely to be extensive because the normal functions of tax administration and product checks at the new UK-EU border would be far from instant. But, again, we should not exaggerate these supply effects for the whole economy.
In its “disorderly” Brexit scenario in November, the Bank of England had to throw everything at the economy to produce its large 8 per cent drop in output. Brexit would wipe out 5 per cent of the productive capacity of the UK economy, it assumed, even though goods and services exports to the EU account for only 14 per cent of the economy. Capital flight, a plunge in sterling and the associated inflation pressure would force the BoE to raise interest rates from 0.75 per cent to 5.5 per cent, it also assumed. I have yet to find even a member of the bank’s Monetary Policy Committee who thinks this is plausible.
Embracing complacency is just as great a sin, however. Brexit could easily cause a deep UK downturn, but it would stem from the indirect effects of a drop in household spending rather than the direct effect of border disruptions or caution among business leaders. [...]
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