Puzzlingly, given the shock and the gloom of late-June, there’s a lot on money now sloshing up -and-down post-Brexit Britain. Sterling’s slump has clearly attracted foreign bargain-hunters, while fears of a coming pick-up in high street inflation seem to be encouraging a ‘buy now’ attitude and driving domestic stock-piling. In fact, adding up all the money now flowing into and out of UK plc makes an impressive total.
We measure these flows from the CrossBorder Capital liquidity indexes. These indexes move closely with future economic activity and tend to lead the business cycle by around nine-to-12 months. Latest data put the UK index at 74.7 (‘normal’ range 0-100). Consider the recent pattern of inward capital movements. These belie the idea that capital has fled post-Brexit, since counting up our foreign exchange reserves, these now total US$130 billion, or more than we had prior to the Referendum. Our monthly index of net inward financial capital movements stood at 65.4 (‘normal’ range 0-100) at end-March 2017; it slumped to 42.2 through July, but ended November at an estimated 61.3. Not so bad?
Recessions are typically signalled by slumps in UK total liquidity to below an index of 30. Without access to cash, consumers cannot spend and business dries up. Yet, it is a plain fact that recessions have never occurred when cash is as abundant as it is today. Of course, we know that it is wise never to say ‘never’, particularly in economics. However, these facts are supported by the gathering anecdote that 2016 Britain is booming. What’s more, numbers published by the forecasting group Now-Casting Economics, using their own high-powered analysis that intelligently screens all in-coming economic data, underline this economic pick-up. Britain’s GDP growth has apparently leapt from the immediate despair of July 2016, to an annualised rate of over 2%, again overtaking our European neighbours and noticeably ahead of activity rates in France and Italy.
On reflection, it was always more plausible that the economic benefits of Brexit come in the short-term and any costs are longer-term, given the nature of the adjustment mechanism. Although the considered view is that we will be ultimately punished for our mid-Summer madness, the reality of a Brexit boom has many awkward implications. It plainly runs against the Bank of England’s gloomy view and it is obviously not the outlook that the ‘Remain’ camp would like to project. But, above-all, it may prove especially difficult for the incumbent European political class to explain away, because in the up-coming white-knuckle ride through next year’s ‘Cresta Run’ of European Elections it is hoped and expected that Europeans will wise-up and vote for the status quo, after the ‘foolishness’ of Brexit. A booming post-Brexit Britain doesn’t quite fit the narrative. Ironically, evidence that Britain may be doing far-far better economically, at least in the short-term, than Brussels would like, could give succour and momentum to the many secessionist movements across the European Union. Political dominoes can fall quickly. Few could have predicted in the summer of 1989 the alacrity with which the Soviet bloc subsequently unravelled. It pays never to say ‘never’ in politics as well.