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What can an economist say about Brexit?

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

  • What can an economist usefully say about the outlook for Brexit? Not much. The decisions are now all political. Rational economics does not play much of a role.
  • We do believe that a deal will be agreed. It may take two votes of the British Parliament to get to that point. The legal default position is that the UK will leave without a deal, unless Parliament agrees something else. That should motivate politicians to agree a deal (after they have voted against to show that they do not like the deal on offer).
  • Media stories sometimes imply the deal is the end of the process. This is not true. A deal starts the more complex process of agreeing what happens next. However a deal may give some certainty to companies. This would allow delayed investment spending to take place. This should help UK growth next year.
  • A no-deal exit would hurt the economy. The economic reaction could perhaps be compared to a financial crisis or similar major shock. A no deal exit would disrupt supply chains and trade infrastructure. As with any other shock, there may also be a bias to be too pessimistic. People do adapt in time, after the first negative surprise.