Vanguard Asset Management chief economist for Europe Peter Westaway has a different take on the UK economy’s resiliency after the EU Referendum. While Westaway was surprised by the robustness of the UK economy in the immediate aftermath of the vote, in a Portfolio Adviser podcast discussion he noted that many in the market are hastily and potentially wrongfully assuming there is nothing left to fear.
“Whereas the short-run impact of all this uncertainty is something we can see in the growth numbers very obviously, I think the long-run consequences of Brexit, maybe like Donald Trump’s protectionism, will manifest itself as slower growth at the margin. It’s like a slow-moving car crash – you don’t know if you are worse off than you would have been and maybe that will make people feel better about the event. But the reality is these long-run effects could still be coming through, we just don’t know what the counterfactual was.”
“We haven’t seen the effects coming through on investment spending, hiring plans and the like, and some of the forward-looking indicators we have seen are starting to soften a little bit,” he continued. “Let’s not forget that the forecasts that are out there are still saying there is going to be a slowdown. It won’t necessarily morph into an outright recession but going from 2% growth to 1% growth is still a meaningful slowdown and that is before we get into the decision of whether we have a hard or soft Brexit. In six months’ time, let’s have another look.”
