UK_G7_2

Here is the issue that muddies the water. Immediately after the Brexit vote, UK put in an impressive performance, appearing to contradict the view that a vote for Leave would push the economy into dire straits.

But such predictions were hopelessly naive, economies don’t descend into recession, or even close, at the drop of a hat. The forces that charge the economy are slow moving, bad news does not lead to a slowing economy overnight, it takes time.

The debate about the effect of Brexit on the UK economy misses the point. Psychologically, attention focuses on what happened after the vote, when in fact there was no relationship, none whatsoever, between the referendum and how the UK performed in the two quarters that followed.

The cause of the subsequent slowdown is open to debate. The timing with the Brexit vote may be a coincidence, however, it does seem that the falls in sterling, that were down to the vote, pushing up on prices, eroding real wages, was a major, if not the major, factor in the slowdown, this would suggest as follows:

The UK’s relatively strong performance immediately after the Brexit vote had nothing to do with the referendum. The poor performance since then, did have something to do with the vote.

There is another point. If the purchasing managers indexes (PMIs) are anything to go by, the US and to a lesser extent the eurozone, are on the verge of enjoying their best run in years. The PMIs for the US are at the highest reading since before the 2008 crisis, the PMIs for the eurozone are close to a decade high. For the UK, they are much weaker.

It maybe that the only thing that has stopped the UK from descending into recession has been the strength of the global economy.