John Redwood’s latest blog discusses the transition following Brexit and the Treasury’s short term forecasts.
If Brexit wins we wish the transition to be smooth and straightforward. There is no need for any disruption of trade or investment, and no need to change trading rules and product regulations.
It is vitally important that the government does not make an Article 50 request to leave the EU under the current treaties. Government lawyers and Remain campaigners just assume that is what they would do. Vote Leave is equally clear that is exactly what we should not do.
A vote for Brexit is a vote to restore UK democracy and leave the legal controls of the Treaties. The easiest way to implement the popular will if that is the result is to pass a short Act of Parliament. This Act would do two main things. It would remove the support for Treaty based European law afforded by the 1972 European Communities Act. It would confirm all current EU rules and regulations remain in place as good UK law.
The UK government should then open discussions with the EU over what if any changes they wish to see in our bilateral relationship. The UK government can also then take the necessary actions to implement the two main pledges of the Vote Leave campaign. We cancel the payments to the EU, and we establish a points based system of border control which does not distinguish between EU and non EU migrants.
Legislating first but not wishing to change any business arrangements with the EU is the best combination of strength and friendship. Thereafter we have our veto back over any new EU proposal, and can in the years ahead seek improvements or domestic UK changes as we wish. The EU for its part is unlikely to reach agreement amongst the members to impose any tariffs or other additional barriers to our trade unilaterally.
The Treasury short term forecasts are wrong again
The Treasury’s short term forecast said fear of Brexit and Brexit would raise the government borrowing rate, depress sterling, lower share prices and tip output and sales into recession.
As the markets now rate the chances of Brexit at 35% compared with thinking it totally improbable earlier in the year you would expect around 35% of the adjustments the Treasury forecasts to have taken place. So what has happened?
Government 10 year interest rates have fallen from 2% at the start of 2016 to 1.14% yesterday, instead of rising as predicted.
Retail sales are up 6% year on year in May, including a strong May itself, instead of keeling over owing to waning confidence. The May figures are higher than pre Referendum levels and growing faster.
Industrial production is up 1.6% year on year in the last figures, instead of falling.
Sterling is at $1.46 compared to the low of $1.38 at the end of February. George Soros is likely to be wrong with his prediction of a large fall in sterling, which many have been trying to create by their words and by selling our currency for weeks without success.
FTSE 100 index was at 5537 on 11 February, and is now 6200. UK shares have followed a similar pattern to other advanced share markets without showing a worse Brexit linked performance.
The Treasury can’t even forecast three months at a time and get it right. They just know how to scaremonger to get it wrong.
It is most unpleasant to watch the UK’s authorities trying to talk the pound down and shock people into losing confidence. Instead of the government seeking to reassure and to stress what is going right, they seem to be watching for any negative figure which they can light on and publicise as evidence of Brexit damage.
Some weakness in housing sales reflecting deliberate policy actions to hit the top end property in London and Buy to Let is attributed to Brexit. Unfortunately for the Remain campaign as we get close to the vote instead of plunging into recession the economy generated more jobs, retail sales accelerated and industrial output expands. Interest rates fall in the markets and real incomes expand.
The economists who use the same or similar models to forecast a poor outcome after Brexit belong to the school of thought that you must put gloom into the forecast. That means you get gloom out. Brexit so far has not hit confidence nor jobs. I see no reason why A pro Brexit vote should do so. Our trade is not at risk and the UK will still be a good place to invest.
You can view the original posts here.