Philip Hammond has had a dream start as chancellor of the exchequer. Unemployment is down. The Bank of England says there are no signs of a general slowing in activity. Consumers are still spending in the shops. The International Monetary Fund says the economy will slow sharply but will avoid a recession.
It is still early days, of course. The full effects of the Brexit vote on the economy will only become apparent over months and years rather than in the four weeks that have so far passed since 23 June. As the Bank’s agents made clear in their monthly report, many companies were so stunned by the result they have yet to work out what to do next.
“Uncertainty had risen and many felt there was a lack of information on which to base major decisions and that information might only become available with a considerable lag as future trading relations became clearer,” they said.
The IMF made a similar point in its updated World Economic Outlook. It noted that Brexit was still unfolding, which is obviously true.
That said, Hammond has not had the baptism of fire that many predicted. Forecasts from the remain camp – of which the new chancellor was a member – came thick and fast in the run-up to the referendum. All of them warned of severe and immediate consequences if the leave side won.
Yet, the economy has not come to a grinding halt, which is perhaps unsurprising given that many of those who voted for Brexit did not believe forecasts made by the Treasury, the OECD and the IMF. Events since the referendum suggest the scepticism was well-founded. The Treasury has canned plans for an emergency budget and there has been considerable backtracking by the IMF on the doom it predicted for the UK (and the wider global economy) in the event of Brexit. That prompted Michael Pearce of Capital Economics to say that the Fund was bluffing all along.
To be sure, the Fund cut its 2017 growth forecast for the UK by 0.9 percentage points. But this would be a relatively modest revision given the magnitude of the referendum. It doesn’t remotely compare to the cost of the great recession, when growth of 2.5% in 2007 was followed by contractions of 0.4% in 2008 and 4.5% in 2009.
It is worth repeating: these are still early days. There is a possibility that the economy will gradually lose momentum over the next 12-18 months as companies decide not to go ahead with expansion plans or move production overseas.
The latest unemployment figures were strong, but some labour market experts think they are not quite as good as they look.
Labour market specialist, John Philpott, director of the Jobs Economist consultancy, said: “On the face of things it might be said that the UK jobs market defied concerns about pre-Brexit vote jitters, with employment up a very hefty 176,000 in the spring quarter and the jobless rate falling to 4.9%. Bonus payments even gave a welcome boost to average weekly pay packets.
“But one doesn’t have to dig too deep for signs that employers did become more cautious in the run-up to the referendum. Self-employment accounts for two-thirds of the total quarterly rise in employment while vacancies for employee jobs flat-lined and growth in average weekly regular pay (ie excluding bonuses) dipped a little.
“These stats thus paint a confusing picture of the state of the UK jobs market prior to the Brexit vote and it would be unwise to draw upon the strong headline figures as evidence that the shock of Brexit on jobs will prove to be mild.”
But only in its wildest dreams could the government have expected the initial post-Brexit-vote world to be so benign. There is plenty of uncertainty but no panic. Sterling has stabilised and share prices are rising. Theresa May and her ministers have the breathing space to work out how they are going to engineer Brexit. Clearly this is the beginning and not the end of the story. But it could have been a lot, lot worse.
