So much for the Brexit scare stories

Apart from a short-lived disruption of trade flows Brexit has been a macroeconomic non-event.

The collapse in UK-EU trade after January 1 was widely reported. What has not been reported nearly as much is that UK exports have fully recovered. They were up 46.6% in February after falling by 42% in January. Imports are not there yet. They were up 7.3% in February after a fall of 29.7% in January. The one prediction I am happy to make is that they will recover too. What these and other numbers are telling us is that even this bit of the Brexit scare stories will not come true. If you look at the latest IMF data and projections in the graphic above, you don’t find a discernible macroeconomic effect of Brexit in the first ten years after the referendum. UK growth fell by more last year than eurozone growth, but this will be offset by higher growth this year. The future prosperity of the UK will depend to a large extent on the future policies of the UK government – Brexit or no Brexit.

The mistaken Brexit forecasts reflect three separate but overlapping phenomena. The first is political capture by official forecasters. The UK Treasury and the Bank of England were, of course, not neutral players. International institutions, like the IMF and the OECD, have the UK government among their shareholders.

A second group got it wrong because they allowed their political preferences to take over their economic judgments. That’s most of the others. Brexit has been the most emotional policy dispute in recent times. It drove some people to insanity. I know very few people who are were genuinely neutral. Almost everyone’s expectation of the economic effects correlated 100% with their political beliefs.

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