Economists are being forced to review their models following new data that suggests the UK economy has rebounded following Britain’s vote in favour of leaving the EU in June.
IHS Markit said today that its Purchasing Managers Index rose to 52.9 from a seven-year low of 47.4 in July, the biggest monthly gain since the survey began two decades ago.
Markit predicted “an imminent recession will be avoided” but urged caution, saying data since the June Brexit referendum point to stagnation so far this quarter and many firms remain concerned about the outlook.
The Markit/Cips UK Manufacturing PMI released on 1 September rose to 53.3 in August from 48.3 in July in an earlier indication that the UK economy is yet to show signs of negative trends since the referendum vote.
The indicators are not conclusive, but observers say that forecasts that the UK economy would quickly go into recession following a Brexit vote are proving to be misleading.
Those arguing that the UK’s economy will be damaged by Brexit argue that Britain has not yet left the EU and that the full consequences of the referendum will only become clear once the terms of departure are defined.
This won’t happen until Article 50 of the EU treaty is invoked by London and negotiations about Britain’s new relationship with the EU are completed.
Economics2030 argues that the economic consequences of Britain’s exit from the EU have always been uncertain and that no effect or a positive effect were possible.
A key factor is the direction of the UK service economy, which accounts for 80 per cent of output. The majority consists of services that are not internationally traded. Many services are not subject to EU regulations, though the Single Market initiative calls for the standardisation of rules governing EU services and measures to protect European service providers from non-EU ones.
The majority of EU tangible goods trade is with countries outside the EU. The EU also exports more tangible goods to the UK than the UK exports to the EU. The UK is a net contributor to the EU budget.
These factors suggest that UK tangible goods sectors might benefit by Britain being outside the EU.
Most models developed by UK and other economists, however, suggest that the UK’s economy will be permanently damaged by Brexit. This is due in part to the fact that most assume that international investor confidence in the UK would be undermined by Britain being outside the EU.
The countervailing short-term factor is the value of sterling against the Euro, which was 10 per cent lower than it was before the Brexit vote on 5 September.
The fall in sterling is stimulating demand for UK exports, underming UK demand for imports and encouraging increased tourist numbers. It is also exercising upward pressure on the UK exchange rate.
Economics2030 says that economists should be more critical of EU regulations on the economies of EU states.