Doomsday predictions on Brexit were wrong

OPINION:

Perhaps Charles de Gaulle was correct when he blocked Britain’s application to join the precursor to the EU in 1963 and 1967 saying, a number of aspects of Britain’s economy… “made Britain incompatible with Europe.” He retired a few years later and the U.K. became part of that body in 1969, but now 50 years later, the Brits realize that maybe de Gaulle was right.

Since the Brexit vote in June 2016 there has been a lot of hand wringing around the world — mostly from globalist liberals. For the past 30 months we’ve been told that exiting the EU will destroy Britain’s economy. 

In fact, the doomsday crowd began the very day after the vote. A drop in the U.K. stock market and a decline of the pound sterling that day was all the evidence they needed to “prove” the sky was falling. Boy, were they wrong. Yes, it’s true that immediately following the vote to exit the EU the British stock market indexes did decline. But they regained those losses and added another seven percent in gains within a week. And, while stock prices do fluctuate, since the Brexit vote the FTSE 100 (England’s equivalent of the Dow Jones Industrial Average), has climbed over 20 percent. Not a bad return for an economy predicted to collapse.

And, what about the pound sterling? The exchange rate for those regal looking coins and bills with pictures of the queen were supposed to become almost worthless. Nobel Prize winning economist Paul Krugman boldly predicted that Brexit would cause a “persistently weaker pound sterling.” But, as of this writing, the pound has become stronger in world markets. So much for Paul Krugman and Nobel Prizes. Today the global purchasing power of Britain’s currency is 5 percent stronger than on the day Brexit was approved. And, during the same time period, all of the other global currencies measured against the dollar — the Chinese RMB, the Japanese yen, and the Euro — are either flat, or have depreciated in value.

But what about other economic measurements? In 2017 the London School of Economics predicted Brexit would cause a 9 percent hit to the British GDP in the coming years. In fact, that prediction didn’t work out either. While British GDP growth is sluggish, it always has been — bouncing around between one and two percent per year the past decade, and averaging 1.8 percent over the entire period. And, since the vote for Brexit it has stayed in that band averaging 1.6 percent annually. Not quite the precipitous drop predicted by the ivory tower.

The Chicken Littles all predicted that the U.K. would lose large amounts of jobs as firms relocated to be in “safe and prosperous” EU countries. Articles in almost every major publication said international banking firms and automobile manufacturers would be soon running for the exits. In fact, banks like Goldman Sachs have expanded in the U.K. market so fast since Brexit they are intentionally putting on the brakes so as not to run afoul of Britain’s growth limits. And in the auto world, Nissan recently announced it has plans to close EU factories in both Spain and Germany, while expanding markedly in the U.K.

Yes, a few firms did shiver and sprint for the EU. These examples caused the British press to have a field day proclaiming it was just the beginning of a mass exodus and that unemployment would skyrocket. Wrong again. Unemployment in the U.K. is currently at a 44 year low, dropping 22 percent since Brexit was approved to 3.8 percent countrywide. 

There is one economic measure that has moved in the wrong direction, inflation. But, at the time of the Brexit vote it was extraordinarily low — just 0.7 percent. It really had nowhere to go but up, regardless of Brexit. Today it stands at 1.8 percent. Yes, higher than 30 months ago, but still below that of the United States and China, and the same as the EU as bloc. We’ll reluctantly mark this a “W” for the globalists.

However, even though the vote for Brexit was 30 months ago, the actual exit from the EU didn’t happen until January 31 of this year. All the folks that in the beginning said the effects would be felt immediately, even before the exit occurred, now say the effects will take time. And, for certain that’s probably true. There are still countless agreements to be worked out, and hundreds of trade pacts to be negotiated, but it seems the British economy doesn’t care. In the past few weeks since the exit, even with all the details still in the works, the pound continues climbing and the British stock market is flat, despite other world markets declining.

True, it will take years before all the economic effects of Brexit show themselves. But on first blush, the past 30 months forecast a bright future for Britain. Also, the market’s response in the last few post-Brexit weeks is reassuring as well. And really, aren’t the globalists all about free trade around the world anyway? Well now the UK is free — free to negotiate its trade individually with every EU country and the rest of the world. Oh yeah, and even while it was still in the EU, Britain’s trade the past 10 years with the bloc was less than its trade with the rest of the world. Fancy that, Charles de Gaulle was right about something.

• Kevin Cochrane teaches business and economics at Colorado Mesa University, and is a visiting professor of economics at the University of International Relations in Beijing.