Sunday, July 28, 2019

Bank of England Survey on Consequences of a No Deal Brexit

The Bank of England has published results from its Agents' Survey of Companies over the period December 2018-April 2019: The average numbers from the responses to its questions on what companies believe will be the macroeconomic consequences of a #NoDeal #Brexit were as follows: Overall Output (i.e. GDP) is expected to fall by 3 ½%, employment by 3% while investment, perhaps more optimistically was expected to fall only by 1 ¼%. Exports were expected to fall nearly as much as GDP itself. 

Note that, on the expectation for the immediate fall expected in output (GDP), the results of the companies' survey of the BoE roughly match the 3% contraction expected in the simulation results of the UK's National Institute for Economic and Social Research (NIESR), which I have blogged just below this ost.

Markets expect, however, that owing to the ensuing post-#NoDealBrexit slack in the economy,  that Interest Rates will fall during the year following the Brexit Date of October 31 2019, and rise gradually in the subsequent period, conditioned on a recovery. 

The figure below, represents a summary of the results of the survey, contrasted against responses elicited for a scenario where a Brexit Deal is reached between the EU and the UK, with a period to allow for transition, were presented in a July 23 2019 presentation by Andy Haldane, the Chief Economist of the Bank of England.

Wednesday, July 24, 2019

Macroeconomic Consequences of a No-Deal Brexit

Dr Jagjit Chadha (@jagjit_chadha), Director of the UK NIESR [National Institute of Economic and Social Research] @NIESRorg presents results of modeling the '#NoDeal #Brexit' scenario's impact on the British Economy. 

Immediately on impact, the model results project a 2-3% *contraction* in economic activity (GDP) and upon subsequent recovery, over the longer-term, the model projects a nearly 7% lower GDP below the #SoftBrexit scenario (which nearly approximates a Business as Usual / BAU) scenario that the model takes as the baseline). 

The contraction (of the 2-3% magnitude) is assumed to occur in the event that not only is no EU-UK deal reached, but the UK carries out no monetary/fiscal or other policy adjustments in anticipation. It thus represents a rather extreme scenario that, within the assumptions of the model is not likely to (fully) come to pass. Yet the discussion is important, so that even the worst consequences of a No Deal Brexit come to be more widely appreciated.