The sky ‘has not fallen’ in following the Brexit vote and Britain will avoid recession, according to a leading international credit ratings agency.
Standard & Poor’s – which before the EU referendum warned that quitting the Brussels club could ‘paralyse’ investment in the UK – has now raised its growth forecasts.
It said it expects output to increase by 1.8 per cent this year and 1 per cent next year – up from the 1.5 per cent and 0.9 per cent it predicted in the aftermath of the referendum in July.
Standard & Poor’s – which before the EU referendum warned that quitting the Brussels club could ‘paralyse’ investment in the UK – has now raised its growth forecasts
Bank of England governor Mark Carney yesterday said the economy has slowed since the Brexit vote – but added that the country’s long-term prospects were strong
The watchdog said the fall in the pound – it is down more than 10 per cent against the US dollar and the euro since the referendum – would boost exports.
It also said it expects a ‘soft landing’ for the housing market rather than the precipitous fall in prices that many previously predicted.
‘In short, the sky hasn’t fallen on either side of the Channel, contrary to concerns that the UK would soon fall into recession,’ said S&P analyst Jean-Michel Six.
The comments further undermine the doom-laden warnings of Remain campaigners before the referendum in June.
David Cameron said a vote to leave the EU would put ‘a bomb under the economy’ and George Osborne claimed it would cause an ‘immediate and profound’ economic shock leading to a ‘DIY recession’.
But in an astonishing climbdown this week, the former Chancellor conceded that it was ‘too early to say what economic consequences of Brexit will be’.
Bank of England governor Mark Carney yesterday said the economy has slowed since the Brexit vote – but added that the country’s long-term prospects were strong.
‘We had expected that the economy would slow materially during the second half of this year, relative to relatively strong growth in the first half,’ he said.
‘Broad brush, that is what we are seeing. That is not a comment on the long-term prospects for the UK economy. There are positive long-term prospects for the UK.’
Mr Carney has faced to calls to resign over his conduct during the referendum campaign when he warned that a Brexit vote could trigger a fresh recession.
Former Chancellor Lord Lawson last week accused the Canadian of joining the ‘chorus of scaremongering’ and branded his behaviour ‘disgraceful’ and ‘appalling’
The central bank has since cut interest rates from 0.5 per cent to a new low of 0.25 per cent and restarted its money printing programme.
Mr Carney has claimed that the moves – which have clobbered savers and pension funds – have helped the economy recover from the shock of the Brexit vote.
Former Chancellor Lord Lawson last week accused the Canadian of joining the ‘chorus of scaremongering’ and branded his behaviour ‘disgraceful’ and ‘appalling’.
But Minouche Shafik, one of the central bank’s deputy governors, yesterday said further interest rate cuts could be needed to prop up the UK economy.
‘There is no doubt in my mind that the UK is experiencing a sizeable economic shock in the wake of the referendum,’ she said.
She added that it ‘seems likely’ that further rate cuts would be required – taking official borrowing costs even closer to zero – to ‘help ensure that a slowdown in economic activity doesn’t turn into something more pernicious’.
But a host of experts have been forced into a series of humiliating U-turns in recent weeks amid signs the economy continues to flourish following the Brexit vote.
According to independent forecasts collated by the Treasury, analysts cut their predictions for growth this year from an average of 1.8 per cent to 1.5 per cent following the referendum.
But they have now raised them back to 1.8 per cent in a major vote of confidence in the UK.
Morgan Stanley, which donated £250,000 to the Remain campaign, now expects growth of 1.9 per cent this year, up from the 1.2 per cent it predicted in August.
The World Trade Organisation this week said Britain has largely shrugged off the Brexit vote.
Roberto Azevedo, director-general of the WTO, said: ‘The UK referendum result did not produce an immediately observable downturn in economic activity.
‘Economic forecasts for the UK in 2017 range from fairly optimistic to quite pessimistic. Our forecast assumes an intermediate case, with a growth slowdown next year but not an outright recession.’
The comments came just a day after a top German business leader predicted that Britain will thrive outside the EU as the bloc turns inward.
Mathias Dopfner, chief executive of media giant Axel Springer, said the UK would be ‘highly attractive’ to investors after quitting the Brussels club.
‘In three to five years from now, my bet would be that England will be better off than continental Europe,’ he said.
The head of the International Monetary Fund last night warned that the Brexit vote represented ‘uncertainty with a big u’ for Britain and the rest of the world.
Christine Lagarde – a close ally of George Osborne who before the referendum warned leaving the EU would be ‘pretty bad to very, very bad’ for the UK – said there would be ‘consequences’.
Despite signs the economy has brushed off the impact of the vote, she focused on the fall in the pound.
‘We saw an immediate and abrupt reaction,’ said Mrs Lagarde. ‘Markets went down. The pound went down. It’s not recovered massively from that, by the way. We think that there will be consequences. There will be down side effect as a result of whatever will come, and we’re still not sure when the negotiations will begin.’
She said Article 50 has yet to be triggered and when it is, there will be two years of negotiations.
‘If that is not called uncertainty with a big u, I don’t know what is,’ she said.
But others pointed out that the fall in the pound was good for the UK by making the country more competitive.
‘The fall in the value of sterling since the vote to Leave the European Union has had commentators wringing their hands,’ said economists John Mills, a Labour party donor, and Roger Bootle, chairman of Capital Economics and former advisor to the Tories, in a report.
‘But why are so many so quick to assume that a fall in the pound is a bad thing? The truth is that the British economy has suffered from an overvalued pound for many years. It has restricted exports by making them more expensive and stimulated imports by making them cheaper.
‘But it has also reduced the profitability of manufacturing industry, which has led to lower investment, lower productivity growth and lower living standards. And because the effects of a high exchange rate fall disproportionately on manufacturing this has helped create an unbalanced economy in which the winners are mostly located in financial services and the South East.
‘The real sterling crisis, then, is not that the pound has fallen in recent months – but that it had previously been priced too high for many years.’