Brexit: Was it Just a Nasty Dream?

Recent data suggest the British economy is weathering the fallout from the referendum vote better than almost anybody expected. This reduces the likelihood of more monetary policy easing this year, taking some pressure off the pound.


It’s now almost three months since the UK’s momentous vote to leave the European Union (EU). In this time, we’ve had little clarity on the likely shape of the UK’s future trading relationship with the EU or the way in which the government intends to handle the exit negotiations (or even when they’ll start).

But we’ve started to get more information on the near-term economic impact. And while much of this has been in the form of survey data, experience tells us that these shouldn’t necessarily be regarded as inferior to the less timely official data—which can be volatile and are often heavily revised.

So what do the data tell us? Initial indications weren’t good. The composite Purchasing Managers’ Index (PMI) for manufacturing and services fell by a record 4.8 points in July, consumer confidence experienced its biggest setback since the early 1990s and the housing-market survey conducted by the Royal Institute of Chartered Surveyors (RICS) showed a collapse in both price expectations and buyer enquiries.

At that stage, it seemed that the dire warnings issued by many commentators and policymakers before the referendum were coming true with a vengeance.

With recession beckoning, the Bank of England’s Monetary Policy Committee (MPC) chose to ease policy more aggressively than expected at its August meeting.