"European markets have suffered more than those in the UK since the vote"by Vicky Pryce / July 11, 2016 / Leave a comment
Read more: The FTSE indices will respond to Brexit in good time
The UK is beginning to see the first economic impacts of the shock of Brexit’s victory—as the much maligned “experts” had warned. Business investment, domestic and foreign, had weakened ahead of the vote, mergers and acquisitions activity had ground to a halt and many postponed projects were waiting for a “Remain” victory before being given the green light. Expected bounce-back is now unlikely to materialise while political and economic uncertainty remains.
We are probably entering a period of very low, if not negative growth. The pound/dollar rate fell to its lowest level in more than 30 years in the wake of the referendum result, putting upward pressure on consumer prices and manufacturers’ input costs. Online advertising for job vacancies halved in the week after the referendum, consumer and business confidence—which was already falling—looks set to fall further, and the consensus forecast for growth in 2016 has been revised down from what figure to just 1.4 per cent. For 2017 it has been revised down from 2.1 per cent to just 0.4 per cent. Though the FTSE 100 share index recovered from a sharp decline shortly after the result of the referendum was announced, various sectors have been very badly hit by the Brexit vote—housebuilding and banking in particular. There is also evidence that investors are trying to withdraw their funds from British commercial property.
But what does the Brexit vote mean for Europe’s economies? A shock to the status quo is never welcome by the markets if they haven’t priced it in. The Europe they knew has been shaken to the core. And it is not clear how it will be shaped in the future. The IMF, the OECD and others had long warned that Brexit was one of the biggest risks for global growth and financial stability. In the US, concern over the implications of the vote is already delaying interest rate rises—we may even see rates fall soon. Expect even more monetary relaxation from Mario Draghi, the head of the European Central Bank.
Lower growth in the UK is bad news for the rest of Europe too, given its trade links with the other 27…