Following the last post, and in the spirit of New Year optimism: what if our trusty Chicken Licken is, in fact, wrong? What if the sky isn't necessarily going to fall in?
How fast things move. Conventional assumption at the moment now appears to be that my last blog post in fact reflects where consensus opinion has currently moved to - ie a No Deal Brexit is on the cards, and that it would be a Bad Thing. House prices would probably drop by a third, with significant effects on the balance sheets of our major banks. And we would have to start eating zoo animals.
Clearly, being in line with the general consensus makes me feel uneasy, so I feel compelled to correct myself. I have to say, being a tin-foil hat wearing loon (to block out the Martian mind-control waves - it's a thing) is no fun if you look around and suddenly see everyone else wearing the same hats. Combine this with the fact it's always good to look at the counter-arguments - so, what is the opposing non-sub-optimal outcome, given a No Deal Brexit?
I still can't get my head fully round the numbers, as there seem to be so many conflicting data sets.
However, based on ONS figures (and depending entirely on how you slice them) the base facts seem to be the following:
- Imports of goods and services from the EU are £302 billion annually.
- Exports of goods and services to the EU are £438 billion annually.
- Of our exports, approx. £188 billion are goods destined for the EU.
This last figure is likely to be a high-end estimate, as a number of goods are shipped to ports such as Rotterdam, which are then shipped to a final destination, so wouldn't be impacted by new EU tariffs. Services will not be impacted by a No Deal Brexit, as they barely form part of the Single Market anyway. The government has said that no tariffs would be applied in the short term on goods coming into the country from the EU. So this last figure is the only hard bit of our GDP which will be impacted upon straight away if TRESemmé loses her giant game of Chicken with the British public.
Our total annual GDP is just over £2 trillion. Average WTO tariff schedules are 20% - which would automatically be applied in a default scenario (granted, it maxes out at 35% on some goods, this is just an average). A No Deal Brexit would therefore add a fifth onto the cost of 0.09% of our total economy, or approx. £38 billion in extra tariffs. This is £1 billion less than we would be paying were we to stay - so we would, on a purely finger-in-the-air fag packet calculation, save a small amount of money in year 1 - just enough to cover the cost of Mark Carney's hair stylist (or around a billion pounds). And this is if we did nothing at all - the logical response would be to drop tariffs on goods from the rest of the world, which we currently cannot do because we are hidden behind a customs union wall designed to protect, in many cases, continental EU producers.
The problem then seems to be entirely a logistical one and the general downside risk to sentiment, with a break down in our just-in-time supply chains - although the Calais authorities are moving heaven and earth to ensure that there are as few issues as possible (they stand to lose an awful lot if things go wrong). I have been wondering for two years how the people that run this country (who are, unanimously in favour of the status quo of course) would stop Brexit - and this appears to be how: by making no preparations or alterations whatsoever for leaving the EU, and then at the last minute pointing out that if we leave, we haven't done any preparations or alterations at all for leaving the EU and our homework is in fact in my other bag miss oh and we'll run out of food - so we should have another vote so we can jolly well stay. Great, thanks for that. Not sure I'll ever bother voting again if that happens.
But, seeing as I'm a Chartered Surveyor (pre-Brexit, anyway - post-Brexit I am He Who Structurally Surveys Our Burnt-Out Cave Dwellings For Food Scraps) - what of housing?
I predicted a market value collapse after the last financial crisis (and there was one, of sorts) - but I was staggered by the rise - and rise and rise and RISE - of house prices subsequently. In the interests of full disclosure, I also predicted house price crashes in, erm...2013, 2014, and the period 2015-2018 (including years 2016 and 2017). But this boom was outside my market-modelling as it was down to a Deus Ex Machina, or "ZIRP" as it was known (zero interest rates) - and the pumping of £375 billion into the house market by Mark Carney et al (small hands, smells of cabbage). And, interestingly, the Bank of England have now said that, in a No Deal scenario, they would release another £40 billion or so of QE. And - this would be the key bit, housing-wise - if they didn't in fact raise interest rates, on the grounds that competitive devaluation is a good thing and would help our trade deficit, this extra money sloshing around would inevitably end up being lent by banks to house purchasers. This would lead to house prices actually going UP.
As I say, the above is just a stab in the dark - but despite all the screeching hysteria, very few people have explained to me exactly why the underlying figures look quite so apocalyptic if we leave the EU without a Deal - a melt-down just sort of seems to be expected. But unfortunately, expectation often begets reality (apart from at Christmas, seemingly, I wanted a train-set and OH SOCKS THANKS A LOT GUYS) so I wouldn't bet against it, given the pyramid scheme that in any case constitutes our fiat economy.
I think I need a lie down.
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