One of the confusing trends since the Brexit referendum vote can be found in the official measure of national income or GDP. A glance at the data since 2016 reveals a series of ups and downs from quarter to quarter, and very little in the way of a trend.
The low points conform to the argument that Brexit was a disaster for the economy, while the mini-recoveries play to the Brexiters’ charge that “project fear” amounted to no more than a childish scare tactic. This year has proved to be little different. Stockpiling by businesses before the first Brexit deadline in March boosted the first-quarter GDP number before a slump in the second quarter.
The third quarter, ending on 30 September, for which we now have two monthly figures to help us gauge the result, looks like it will be mildly positive. The July figure from the Office for National Statistics of 0.3% was followed by -0.1% in August. A little bit of stockpiling in September before the October Brexit deadline is expected to raise the average for the quarter to 0.1% or even slightly better.
Whatever the outcome of the negotiations going on at the moment between No 10 and the EU, Brexiters will say that all the uncertainty was worth it, especially when a recession fails to appear.
For many Remainers, this feels like a betrayal. Not that anyone wanted the economy to slump. It’s just that the Treasury, the International Monetary Fund and the Organisation for Economic Co-operation and Development said that it would, should Britain vote to leave the EU. What kind of forecasters are they when something so important can be miscalculated so badly?
This view has become entrenched, even though the latest analysis from the Institute for Fiscal Studies shows that the post-referendum analysis by the Treasury has come to pass. That is, the UK economy has seen more downs than ups and is now 2% to 3% smaller than it would have been if the vote had never happened.
The trajectory of GDP growth from March 2016 was calculated by the Office for Budget Responsibility and showed the UK being between £40bn and £60bn bigger than it is now. That is a huge loss of income to businesses and households that would have generated significant tax receipts.
Worse are the cuts made by businesses that will deny Britain a strong recovery whenever the fog of Brexit uncertainty ends. Business investment in new plant, machinery and technology has grown 0.4% since 2016. That is barely more than 0.1% a year. Contrast that growth rate with 2015, when business investment increased by 6.5% and in 2014 when it jumped 7.3%.
Training is another target for cuts. Last year the lobby group the CBI said businesses were cutting back on product development and training at a rate not seen since the economy was in recession in 2009. That trend has continued. Without training and investment, UK firms are as ready for the next industrial revolution as Mickey Mouse would be for the Rugby World Cup.
Still, the Brexiter might say, “But where is the promised recession?” To answer this question, it is safe to say the UK was saved from this fate by a boom in migration and a boom in global trade during 2017 that lasted through much of 2018.
Migration, especially, seems to have blindsided economists. When a country can count on about 1 million more people every four years, it is almost impossible for GDP not to rise (financial crises notwithstanding). Almost all migrants are working-age adults. The Migration Observatory says the general trend is for individuals in their 20s and early 30s to arrive in search of work, with most of them landing a job quickly, especially women.
Yes, they put pressure on housing supply and primary schools once they get around to having children, but study after study has shown the UK is a net gainer from migration, even the uncontrolled version courtesy of EU membership.
The trend this year is flat, which is to say the net migration figure in August was 226,000, around the same as the 230,000 seen in 2017 and down from the recent peak of 343,000 in 2015. Still, it doesn’t say much for an economy that it struggles to move forward without relying on ever greater numbers of people to fill the gaps in employment, from pulling pints and digging carrots to designing buildings and extracting teeth.
The government has said it will open the spending taps following either a no-deal Brexit or its cousin, the managed Brexit deal contained in Boris Johnson’s briefcase. It will need to, because the UK’s economic engine is only moving with the help of legions from abroad.
