The majority of economists are just as pessimistic about Brexit’s likely effect on Britain’s economic prospects as they were a year ago. They have not been reassured by the resilience of the UK economy after the referendum or the plans of Theresa May’s government.
A year ago, three-quarters of economists surveyed in the annual Financial Times poll thought Brexit would harm Britain's medium-term economic prospects, nine times more than those who thought it would improve the outlook.
Almost half of the 120 economists answering the Brexit question at the end of 2016 have not changed their opinion, while 40 per cent have become more pessimistic and only 13 per cent are more optimistic.
Economists do not generally feel they have been proved wrong by events following the vote, even though only about a third of them said early last year that a vote to leave the EU would have little impact on the economy in 2016.
Diane Coyle, professor of economics at Manchester University, predicts that worse trading relationships with the EU will hurt goods exporters, those in long supply chains and the education, finance and professional services sectors.
“The Brexit vote will tear a hole in the fabric of the economy,” she says.
Sarah Hewin, chief European economist at Standard Chartered, says the noises from the British government have made her more worried about the long term than a year ago because ministers “very quickly ruled out joining the European Economic Area (EEA), the one Brexit option that could have delivered the least bad economic outcome”.
A former head of the government economic service, Vicky Pryce, now chief economic adviser to the Centre for Economics and Business Research, worries that Britain’s negotiating position with the EU is feeble.
“Instead of taking control, we seem to be entirely dependent on what other countries or regions may be prepared to negotiate with us. The UK is in reality the supplicant,” she says.
A large number of economists recognise that their short-term forecasts for Brexit were too pessimistic, but this generally has little bearing on their views about the longer-term implications of leaving the EU. John Gieve, the chairman of Nesta and former deputy governor of the Bank of England, says: “The short-term reaction has been smaller than I expected, but this is only the beginning of the story.”
Michael Dicks, chief economist at Wadhwani Asset Management, warns of ministerial “hubris” following a better-than-expected 2016, saying the assumption that there will be “only a small long-term cost of exit [means] British negotiators may end up agreeing to a bad deal”.
Brian Hilliard, chief UK economist at Société Générale, dissents from this majority view, saying that the resilience since June “provides more of a cushion than I expected against the further shocks to come”.
Some economist supporters of Brexit feel vindicated (though no more optimistic a year later), while many of the economists expressing greater optimism were already in favour of leaving the EU.
Ryan Bourne, former head of public policy at the Institute of Economic Affairs, says: “The resilience of the economy has surprised me and given me more confidence that the long-term gains can be achieved without large short-term costs.”
Gerard Lyons, chief economic strategist at Netwealth Investments, still sees many opportunities resulting from Brexit, especially in the City of London.
“Even though there are challenges associated with leaving the EU, I expect the government to have decided upon a strong negotiating stance by the time it triggers article 50,” he says.
But these expressions of confidence in Britain’s economic future represent a minority opinion in the profession, with many more economists concerned that the outlook has deteriorated.
Stephanie Flanders, chief market strategist for Europe at JP Morgan Asset Management, says that the difficult politics of Brexit have increased the risks of “a highly disruptive departure” and that “the least costly, most economically attractive versions of Brexit seem now to be much less likely”.
“In the end, it comes down to money,” says Bronwyn Curtis, of the Society of Business Economists. “The UK is the country that initiated the divorce, and Europe will want to make the UK pay the highest price possible.”
What some of the economists say:
"I suspect the UK faces a prolonged period of uncertainty, as it will likely be many years before the UK's divorce from the EU is absolute. I doubt that the UK will come to an arrangement that is as beneficial economically as membership of the EU is, especially given it will likely have restricted access at best to the single market. I also suspect that some sectors of the economy could suffer if the UK follows too stringent an immigration policy
– Angus Armstrong, director of macroeconomics, National Institute of Economic and Social Research
"Last year I said that Brexit was a huge long-term supply-side opportunity for the UK. But I did expect a temporary slowdown in transition. The resilience of the economy has surprised me, and given me more confidence that the long-term gains can be achieved without large short-term costs."
– Francis Breedon, professor of economics and finance, Queen Mary University London
"It seems increasingly possible that the more adverse scenarios for future UK-EU relations will materialise, while the global political mood has become more protectionist, which will make it harder for the UK to negotiate and benefit from international trade deals."
– Andrew Benito, senior European economist, Goldman Sachs
"We are more optimistic than we were about the short-term prospects. Our views of the medium- to long-term effects of leaving the EU have changed little. What, then, have we learnt about the effects of the referendum decision in the past five months? We had not expected the UK to vote Leave on June 23rd.
"In the aftermath of that decision, we lowered our UK forecasts, by 2.75 per cent for the level of GDP over a three-year period, and expected 0.2 per cent quarter-on-quarter growth in Q3.
"The subsequent resilience of the UK economy has caused us to revise up our UK outlook, by around 0.5 per cent on the level of GDP over the next three years, with that positive news concentrated in 2016 Q3 and 2016 Q4 and locked in to our forecast thereafter. This tells us relatively little about long-term prospects outside the EU. Those long-term prospects depend on other policy decisions that the UK makes. If the UK remains an open, dynamic economy, then this will limit the long-term effects of leaving the EU."
– Tim Besley, professor of economics and political science, London School of Economics
"I'm more optimistic for two reasons. First, the immediate shock of the unexpected vote had considerably less effect than most of us had expected. Second, the EU itself is increasingly fragile, so there is a rising probability that we will not have been departing from a successful continuing regional system."
– Andrew Goodwin, lead UK economist, Oxford Economics
– Copyright The Financial Times Ltd
