Since Theresa May's Lancaster House Speech in January of this year, two new Project Fears have sprung up. The first (from The Labour Party, EFTA4UK, Liberal Leave, Leave HQ and Dr Richard North) states that “We need to remain members of the EU's internal market after we officially leave the EU”, even though there are over 50 countries outside of the single market which have free access to it via free trade agreements. The second (from Nick Boles, Lord Hague and Chancellor Philip Hammond) states that “We need to have a transitional period of up to four years during which time we would still be members of the single market and the customs union”.
Before we pay these campaigns and their claims any attention, we should bear in mind just how wrong the previous Project Fears, which were often run by the very same people, really were.
The first Project Fear said “We need to join the European Economic Community (EEC or so-called 'Common Market') and, if we do, we'll export more to the EU”. The exact opposite has happened – we've exported less and less to the EU and, in 2016, we had a record high trade deficit with the EU of £78.1 billion. The second said “We need to join the European Exchange Rate Mechanism (ERM)” but this was then a disaster for us and led to Black Wednesday. The third said “We need to join the Euro and, if we don't, London's business will grind to a halt”. The exact opposite has happened. The fourth said “We need to stay in the EU and, if we don't, there'll be a recession in the immediate aftermath of a leave vote”. We've instead had record levels of prosperity since the Brexit vote.
All of Project Fear's economic predictions were wrong except, I will admit, for their prediction about sterling. They correctly predicted that there would be a significant fall in the value of the pound sterling in the immediate aftermath of a leave vote and the pound has fallen in value by about 15% on average. However, remoaners seem to want to think that the value of the pound is the only, or at least the main, indicator of the strength of the UK economy. This is, as any economist will tell you, nonsense. There are other indicators such as the FTSE 100, the FTSE 250, our output, our exports, our unemployment rate, the amount of foreign direct investment we attract and the rate of our economic growth which are equally as important, if not more important, than the relative value of sterling. All of these factors must together be taken into account before a judgement can be made on the strength of the UK economy.
The FTSE 100 has hit four new record highs since the Brexit vote: in December 2016 (6 months after the Brexit vote), in January 2017 (7 months after the Brexit vote), on 1st March 2017 (9 months after the Brexit vote and 2 months after the Brexit plans' release) and on 17th March 2017 (9 months after the Brexit vote and 2 months after the plans' release). The FTSE 250, which is widely acknowledged as being the best gauge of domestic economic sentiment, also reached a record high on 15th February 2017 (8 months after the Brexit vote and a month after the revelation of the Brexit plans). I include the relative timings in brackets as remoaners constantly told us in the months after Brexit that the reason why there still hadn't been a recession due to Brexit was because the Government hadn't revealed its position on the single market and the customs union and as Article 50 hadn't been invoked yet. However, a year and three months after the Brexit vote, eight months after the Government revealed its Brexit plans in the Lancaster House speech and six months after the invoking of Article 50, we are still waiting for this recession.
We were told that, after a vote to leave, unemployment would rise by 9,000 per month for the rest of 2016 but unemployment has actually fallen by almost exactly that amount and is now at a record low of just 4.4% - the lowest level since 1975. We were told that we would experience two successive quarters of negative economic growth but we actually grew faster in the six months after the Brexit vote than we did in the six months leading up to the vote. At the end of 2016, we finished up as the most successful major economy in the entire world, the fastest growing economy in the entire of the western world and the fastest growing economy in the G7.
The Department for International Trade has attracted £15.8 billion of foreign direct investment (FDI) from August last year to January this year and the UK still attracts more FDI than any other country in the whole of Europe. Since the Brexit vote, we've seen a record increase in financial services trading figures and a record increase in service industries growth. As of 30th June 2017 the UK attracted more FDI in financial services than any other country in the whole of Europe. Developers have continued to press ahead with the construction of more office spaces in London, showing fears of a post-Brexit business exodus (a so-called “Brexodus”) to be yet more scaremongering. UK car sales increased by 3.3% and reached their highest level in 2016 after the Brexit vote. Cake and cheese exports have both increased by 25% since the Brexit vote and the UK now exports more food, drink, bread, cakes, pastries and biscuits than it ever has before. Over the last year UK exports increased by 11.5%. As of 31st July last year, 27 non-EU countries with a combined GDP of over £40 trillion reportedly already wanted to sign new trade deals with the UK once it has left the EU and this potential market rather dwarfs the EU’s internal market which is worth only about £12 trillion.
Even if we are to take the value of the pound sterling in isolation, the remoaners are far from telling the whole story. Firstly, they all just presume that they can *know* for certain that the devaluation was indeed *caused* by the Brexit vote alone. Correlation does not, however, prove causation - it could just be a coincidence or other factors could be involved. Jacob Rees-Mogg MP has pointed out that both the OECD and the IMF said before the referendum that the value of the pound was too high - even strong remainer Ken Clarke MP has admitted this. Lord (Mervyn) King, the former Governor of the Bank of England, has said that the devaluation is a welcome fact. Therefore, a devaluation was only a matter of time and the Brexit vote merely brought forward this already-inevitable devaluation. The columnist Peter Hitchens foresaw a devaluation way before the referendum and states that the devaluation has nothing to do with the Brexit vote and would have also happened if we had voted to remain.
However, remoaners go on to presume that this devaluation has only been a negative thing for the UK economy. This is false. It has not led to out of control inflation as many predicted - inflation actually fell in October of last year, 4 months after the Brexit vote. Jacob Rees-Mogg has pointed out that the last two significant devaluations before the Brexit vote (in 1931 and in the early 1990s) both resulted in lasting periods of prosperity and rising living standards. News of the devaluation has been happily received by UK exporters who have said that the value of the pound has been too high for too long. The devaluation has made their exports cheaper and more competitive relatively-speaking and has consequently increased demand for our exports overseas. In fact, in September of last year, UK exports reached their highest level in 20 years. Finally, remoaners are always negative and pessimistic about our chances of getting a good free trade agreement with the EU agreed by midnight on 29th March 2019. However, even in the most unlikely and worst-case scenario of there being no Brexit deal at all by then, the average ~15% devaluation would easily dwarf an average most-favoured nation (MFN) goods tariff with the EU of just 5%.