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No referendum is an island, entire of itself

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The UK voted to leave. It is a little futile to speculate on the ensuing economic damage (though the consensus is clear that there will be economic damage). Sterling is at its lowest level since 1985 – the scale of the move is large enough to raise import price inflation.
  • Today's result is indicative of longer term, global trends. The rise of anti-politics and scapegoat economics is evident in today's result, but this is an OECD-wide issue not just a UK issue. Anti-politics and prejudice politics is a negative for long term economic growth.
  • The result was deeply polarised. Most regions voted around 60% or 70% - one way or the other. Only the aggregate result was close. Political polarization is evident elsewhere, and is very difficult for financial markets to deal with. It also tends to produce more extreme market reactions.
  • Conventional mathematical economic models are not well served by this environment. This is the age of the political economist. Global free trade is likely to suffer as the economic policy of the EU becomes more "southern European" in the absence of the UK.