If you believe some of the headlines, the global economic shocks are already hitting ‘Brexit Britain’ much harder than other countries. Even the Bank of England governor, Andrew Bailey, has warned that inflation is set to be higher for longer in the UK, and growth weaker.
The IMF, OECD and currency traders all apparently agree, which obviously suits the ‘Brexit disaster’ and ‘Tory catastrophe’ narratives as well.
But if you look beneath the bonnet, the evidence to back up these fears is surprisingly flimsy.
Starting with the recent GDP data, the UK economy grew by 0.8 per cent in the first quarter of this year, which was better than any other G7 economy, bar Canada. GDP actually fell outright in Japan, France and the United States.
Taking a longer view, between the second quarter of 2016 (the EU referendum) and the first quarter of 2022, UK GDP has grown by a total of 6.8 per cent. This is up there with France (6.9 per cent), and well ahead of Spain (4.8 per cent), Germany (4.5 per cent) and Italy (2.8 per cent). Claims that the UK economy is already ‘5 per cent smaller as a result of Brexit’ therefore fail a basic ‘sniff test’.
Admittedly, the more timely monthly data show that the UK economy stalled in the spring. But other indicators suggest that, if we did have monthly GDP data for other countries, their figures would be at least as bad, and in many cases a lot worse.
For example, the latest purchasing managers surveys for June (published by S&P Global) suggest that output grew more quickly in June in the UK than in any other major advanced economy. The real ‘sick man of Europe’ was Germany. Indeed, manufacturing order books and output expectations are relatively weak across the whole euro area.
The latest numbers on inflation do not support the narrative that the UK is suffering more than other countries, either. Our headline rates are not much different from the average in the rest of Europe, or the US. Food price inflation is actually lower in the UK than in many other countries, notably Germany and the Netherlands (where it is already well into double figures). Producer price inflation is higher in the euro area than the UK too.
Brexit pessimists therefore have to fall back on ‘core’ measures of inflation, stripping out both food and energy. These measures have risen further in the UK than in the rest of Europe. But this can partly be explained by the relative strength of the economy here, and by the UK government’s focus on helping households by topping up incomes rather than intervening to lower prices.
What about the currency markets? Sterling has recently hit a two-year low against the US dollar. But this is still mainly a story of dollar strength. The euro is near its lowest level against the US currency for twenty years, and the Japanese yen is at a 24-year low. And given all the hype about an imminent ‘sterling crisis’, it was perhaps inevitable that the pound rallied on Thursday.
Still, some will always try to find ways to paint the UK in the worst possible light, while ignoring what is happening elsewhere. Germany provides two more examples.
First, the UK recorded a record current account deficit in the first quarter of the year, which many were quick to blame on weak exports following Brexit. But Germany’s trade balance has also deteriorated sharply, leading to the first monthly deficit in goods since 1991. This was driven by surging imports, as a result of higher commodity prices.
Second, the cost of living crisis is at least as severe in Germany as it is in the UK. The press in Germany is full of stories of record inflation and imminent recession. Rising poverty was already a big issue in 2021, with German food banks (yes, they have them too) struggling to cope. But 2022 looks to set to be far worse.
The French economy is now struggling as well. This will particularly disappoint the many UK fans of France’s more interventionist approach during the energy crisis.
For example, our own TUC was quick to welcome this week’s announcement that the French government intends to fully nationalise the energy company EDF, after it had forced ‘shareholders’ to keep prices down.
However, the French government already owned more than 80 per cent of the company, so the ‘shareholders’ here actually means the French people, and especially taxpayers. The government has also run the business into the ground, with huge cost overruns, massive debts, plant shutdowns and power shortages. This is not a model that anyone sensible could recommend.
So all we have left are those IMF and OECD forecasts. These are just that – ‘forecasts’. And given all the uncertainties, I am not sure I would call them any more than ‘projections’.
It is also easy to find flaws and inconsistencies in them. For instance, the OECD is assuming that UK GDP will flatline from the second quarter of this year, but that the German economy is set to rebound and sail merrily upwards – despite the mounting evidence to the contrary.
Of course, this does not mean that all is rosy in the UK. Obviously it is not. It would also be wrong to take comfort in the misfortune of others. But what is happening in the rest of Europe – and the US – is important context for the problems in the UK. If you care to look, the local media in other countries is at least as negative on their own economies as much of the UK establishment is on ours.
This piece was first published by the Daily Telegraph on 8th July 2022