Where to begin? The amount of disinformation before, during and after the referendum on EU membership has been staggering. Now commonly called fake news, this has been spread by various mainstream media across television, the internet and old fashioned newspapers. It includes national broadcasters, key politicians, pressure groups, vacuous celebrities and even a U.S. President. As the saying goes there are “lies, damned lies, and statistics.” So I am going to examine a few. As with most things the context is key. We are now in a position to see what has happened 18 months down the line. Looking at long term trends also helps put things in perspective.
Remoaner claims: The economy will shrink by 1%. The economy is shrinking.
Hardly. The economy is still growing. Osborne’s claims of a 1% recession have proved illusory (surprise, surprise). There was no emergency budget. The rate of growth in the economy has slowed. But as you can see, this was a trend that started in 2014. Growth rates were on the way down years before the vote. The main problem we still have is productivity. If you want higher growth rates, you need to fix the productivity problem. What is needed is greater technological advancement, automation and innovation. Things like properly rolling out superfast broadband to all areas will help. Dare I say that importing thousands of unskilled workers by the boat load doesn’t exactly help. Yes wages costs are lower, but you get the grade of labour you pay for. Pay higher wages and you get a better skilled, more motivated and committed workforce. But that’s probably racist, or something. Actual GDP continues to rise on an upward trend. There was a dip in 2008, but GDP has now climbed back above the level seen before the financial crisis.
Remoaner claim: 500,000 immediate job losses. Workers unavailable, the fruit is literally rotting in the fields. Brexit stole my future. (Contradictory, I know.)
Unemployment has continued to fall, and is at a 42 year low. It spiked during the financial crisis, but has been falling ever since. It has not been affected by the referendum result. Youth unemployment has continued to fall. It was over 13% before the vote, and now stands at 11.8%. There are still around 500,000 unemployed young people, which is a lot. But as immigration from the EU has declined, jobs are opening up. These are the type of jobs that are lower paid but are the first step on the employment ladder for many, for example in the hospitality industry. Rather than stealing their future, it may have just saved it.
Remoaner claim: wages aren’t rising. Wages are stagnating.
Wages are rising, at about 2.3%. From the top wages graph, you can see that wage growth crashed during 2008, but has been on an upward trend ever since. Examine the middle wages graph. note the spike in wage growth before we joined Europe. Then notice it has been on a downward trend ever since. Food for thought for remainers. In terms of monetary amount wages continue to rise and haven’t really stopped. The average weekly wage is now above £500 and is set to continue rising. Growth is slow, and of course we want it to rise more and outpace inflation. Why so slow? Well it might be the oversupply of labour caused by free movement. When there is a never ending supply of cheap labour from the continent then employers feel no need to raise wages. If you ask for a wage rise you are told no, and to like it or lump it. You can be easily replaced with yet another EU worker who will work for the minimum wage (or less). This actually leaves workers and migrants with less rights and job security and lower wages, a case that was well put by the Socialist Workers Party. It also weakens unions as there is a high turnover of members and they can be easily sacked. You would think Corbyn and the gang would be all over this because of it. But no. Labour gave up on the British working classes some time ago.
Remoaner claim: Manufacturing will be destroyed by Brexit.
Manufacturing growth jumps to four-year high https://t.co/JKZmLvJmF7
— Jonathon Davies (@JonathonDavies6) December 15, 2017
In terms of growth it has been something of a rollercoaster ride. Up and down, up and down. Overall it has seen more growth periods than shrinkage since the referendum. Manufacturing recently hit a 4 year high. This is also linked to exports and the weaker £. Uk goods are cheaper, and therefore can compete in foreign markets. This has also led to a boost in exports. Although the UL economy is largely based on its domestic service industry, this is also an important part of the economy, actually making goods to sell at home and abroad.
Remoaner claim: British exports will go down after referendum. We will lose our biggest market in the EU. Back of the queue, etc.
As you can see from the first graph, exports have been on an upward trend since the late 1990s for both goods and services. Again, a dip during the financial crisis as expected. Since then it has been on the rise again. In the recent past exports have accelerated since the referendum. As mentioned the weaker £ allows us to export more. The biggest single market we export to is the USA. We are increasingly exporting to the middle east and far east. As mentioned before the UK has a large service industry. this in one area that we have not exported as much as we would like to the EU. EU rules and laws within countries restricted it. But hey, single market.
The £ has crashed. People can’t afford to go on holiday abroad using the planes that won’t fly after Brexit.
The pound has dropped, but has now stabilized around 1.13 Euros. As you can see the trend has been downwards for a while before the referendum, since the early 2000s. It did peak just before the referendum, as business types and bookies thought we would remain. It then fell to its present level. Does the low £ bring problems? Yes, see inflation below. There is no shying away from it. However, as with many things in economics there is also an upside. Our own tourist industry has experienced a mini boom. many people choose to stay in the UK for their holidays. Also it is cheaper for foreign tourists to visit as heir money goes further. As previously stated exports and manufacturing have benefitted.
Inflation is the major issue, along with productivity. Inflation is currently outstripping wages, meaning wage growth in real terms is not happening. Your buying power is about the same as 2006. You aren’t really worse off, but it is not improving. Partly this is due to the lower pound. Foreign goods are more expensive, so we get imported inflation. Since we decided to let all and sundry in to the country, we have more mouths to feed, and less farmland to grow food on, so we have to import more. This is not new. WW1 German tactics were to try and starve the UK using U-Boats. But recent population growth has exacerbated this. It is also due to quantitative easing, printing more money since 2008. A currency or item of value holds its value due to rarity and demand. The more of a thing there is, the less valuable it becomes, and vice versa. This is why the U.S. stores gold in Fort Knox. By guaranteeing less gold is available, it holds its value as the supply is limited and demand high. Same with money. Print more and it loses its value. See hyperinflation in Weimar Germany. Combine this with record low interest rates, which usually are used to check inflation. Result: inflation. But there is also no doubt the weaker £ is playing its part since the referendum. Facts must be faced. We really need inflation to slow down, or wages to rise more quickly. Preferably both. To put it in to context though, it is still lower than in 2012. The media didn’t really mention it then. can’t think why. Are there any upsides? Yes. Inflation shrinks historic debts. The overall amount outstanding remains the same, while money changes value as time goes on. This could be potentially useful for the next item.
Remainer claim: borrowing will rise substantially to pay for Brexit.
While the deficit has been reduced, we continue to borrow. The graph initially looks good. But all this is still borrowing that is adding to the national debt. Our government debt to GDP has gone from 42% around 2006 to 89% recently. This is a legacy of the Blair and Brown days, but Tory “austerity” hasn’t put much of a dent in it either. Brexit doesn’t appear to have had a great deal of impact on this. Whether this is the case in future remains to be seen.To be fair it has plateaued at the current level, but nether is it going down. The interest alone on this is around £42 billion a year. This is probably the most worrying area of our economy. Our children and grandchildren will be the ones that live with this and have to pay it back through taxes. While it compares favourably to other countries e.g. Italy with 132% and Japan on 250%, we don’t want it to keep increasing. This is one of the many reasons we need to avoid a Corbyn government that has threatened to borrow vast amounts to “invest.”
In conclusion the UK is one that is doing reasonably well. While it is not supercharged and firing on all cylinder, neither is it failing. It is still the fifth largest in the world (I don’t count the EU as a country). It is still suffering a hangover from the 2008 financial crisis, but it is recovering and is on the way up. There are some challenges to overcome such as inflation and borrowing, neither of which is insurmountable by a long way. These are also linked to other issues, as we have seen. But in many ways the EU referendum result has either not affected the economy, or has in fact benefitted it. Instead of saying “despite Brexit,” maybe we should start saying “because of Brexit.”
(All information correct at the time of writing. P.S. I know we may not actually leave due to our glorious politicians in Westminster.)
© Jonathon Davies 2017