Brexit and the Pound in Your Pocket
The early returns on Brexit are in, and the data are not good, regardless of claims to the contrary by supporters of the UK’s decision in June to withdraw from the EU. And, though sterling's depreciation should boost exports, history is not on Britain's side.
BERKELEY – The early returns on Brexit are in, and, contrary to what some have been claiming, they’re not good. In July, following the referendum, consumer confidence collapsed at its most rapid rate since 1990. Surveys of manufacturing and construction dropped precipitously. While August’s data were better, it is too soon to say whether the improvement was just a “dead cat bounce.”
In this topsy-turvy post-referendum world, the one piece of good news is sterling’s fall on the foreign exchange market. A lower exchange rate will make British exports more competitive. Faced with higher import prices, consumers will shift their spending toward domestic goods. This, too, will give a boost to the British economy.
The question is how big a boost. Skeptics caution that Britain relies heavily on exports of financial services, which are not especially price-sensitive, and that the scope for growth of merchandise exports is limited by the subdued global demand.