Ruth Lea, economic adviser to the Arbuthnot Banking Group, says Yes.
The Bank of England was far too pessimistic in August when it slashed 2017’s forecast growth rate to 0.8 per cent and its accompanying monetary package was premature, to say the least. Unsurprisingly, therefore, it has since upgraded this year’s growth prospects twice: to 1.4 per cent (in November) and to 2 per cent (yesterday).
It will be interesting to see if the OBR upgrades its November forecast, in which it downgraded 2017’s growth expectations, in March. But the Bank and the OBR were not alone in their gloom about the impact of a Brexit vote.
Far from it, given the all-pervading “groupthink”.
The Treasury warned of recession prior to the vote and, predictably, the IMF and the OECD slashed their forecasts after the vote, while Niesr warned of a 50/50 chance of recession. Of course they should admit they misjudged Brexit, though the facts speak for themselves. Meanwhile, those of us who believed the vote wouldn’t make much difference, a select minority, remain cautiously optimistic about the future.
Vicky Pryce, a board member of CEBR and author of It’s The Economy, Stupid, says No.
Brexit hasn’t happened yet. Most forecasts were based on Article 50 being triggered immediately and Britain swiftly exiting the Single Market. This won’t happen for two more years.
With a huge injection of liquidity soon after the vote by the Bank of England and a cut in interest rates, credit flowed to businesses and consumers, and borrowing and spending rose sharply. And the weakness of the pound has helped manufacturing exports.
These are exceptional circumstances and policy actions have helped sustain growth. It is likely that this will carry through for a bit longer but all that has happened is that the pain has been postponed.
We are already seeing businesses increasingly cautious about investing, concerned by what looks like a possible hard Brexit and lengthy and difficult trade negotiations ahead. And consumers are reining in with a fall in retail sales and consumer borrowing in December as inflation begins to bite. The Bank’s forecasts may well prove too optimistic.