But hardline Leavers are always hesitant to put their money where their mouth isby Jonathan Portes / February 11, 2019 / Leave a comment
No deal? No problem—or, at least, no recession. According to the Financial Times, “the consensus is that the UK will avoid a recession in any scenario.” The February forecast from the National Institute of Economic and Social Research suggests that while no-deal would mean no growth to speak of in 2019, this would be stagnation rather than outright recession.
Some no-deal enthusiasts were quick to seize on this, with Jonathan Isaby of BrexitCentral tweeting “Another Project Fear prediction out of the window.”
I disagree. But there’s little point in debating Isaby, or indeed anyone else with similarly dogmatic views, on this; far better to see if they actually believe what they say. So I asked if Isaby would put his money where his mouth was, and offered a bet—£1,000 that, in the event of no-deal on 29th March, the UK would see a recession in 2019.
No takers from Isaby or any of the other prominent Brexiteers who retweeted him. Economists call this sort of performative but ultimately empty posturing “cheap talk”; people on Twitter tend to refer to it as “virtue signalling.” But Dilip Shah, who is a more than competent economist (and certainly has a better forecasting record than I do) did. So the bet is on.
Now, while I think the odds are in my favour, I don’t think this is easy money. Over the long-term, the economic impact of Brexit will be largely driven by our future trading and migration arrangements with both the EU and the rest of the world. Under almost all plausible assumptions, these will reduce UK trade and immigration, and therefore growth. Hence the strong consensus among economists that Brexit will mean that we will be somewhat poorer than if we stayed in the EU—although there’s plenty of uncertainty about how much.
But the short-run impact of no-deal is, paradoxically, far harder to predict. How to model the disruption to supply chains on which much of British manufacturing depends? Will stockpiling, either by firms or households, actually push up demand and hence output in the run-up to 29thMarch? Will both sides put in place measures to mitigate the immediate impacts of no-deal—for example on transport, financial services and the like—or will the political atmosphere between the UK and the EU27 be so poisoned, particularly if the UK refuses to pay the financial…