- HM Treasury warned of an economic shock in the event the UK voted to leave the EU
- Gloomy forecasts on inflation and the pound proved uncannily accurate
- But the economy, jobs and housing markets all did better than expected in the immediate aftermath of the referendum
- Long-term impact of the vote is hard to define owing to subsequent events, including the Covid pandemic and wars in the Ukraine and Iran
- The UK stock market has started to do better of late, but the FTSE 100 has lagged and sterling has never regained its pre-referendum levels against the euro or the dollar
“So much has happened since the EU membership referendum of June 2016, in the shape of Covid-19 and lockdowns, Russia’s attack on Ukraine, and this year’s war in the Middle East – to name but three. That means it is very hard to fully assess the long-term impact of Brexit upon the UK economy,” says AJ Bell investment director Russ Mould.
“Neither of the Treasury’s short-term ‘shock’ or ‘severe shock’ scenarios proved totally accurate, and some of the forecasts turned out to be flat out wrong. But a few of the concerns raised by May 2016’s so-called ‘Project Fear’ document did play out as expected, notably with regard to sterling.
“The Treasury published its document on the potential impact of a ‘leave’ vote on Brexit just over a month before the referendum took place. The analysis, entitled ‘The Immediate Economic Impact of Leaving the EU,’ offered a gloomy prognosis on the basis of seven indicators of economic health: GDP, inflation, the unemployment rate, the level of unemployment, real wages, house prices and sterling.
Source: HM Treasury, May 2016. Based upon the percentage difference from base level unless specified otherwise. Peak impact over two years. Unemployment level rounded to the nearest 10,000.
Near-term implications
- GDP growth – too pessimistic
“Where the Treasury fell widest of the mark was with its forecast that a recession would immediately follow a vote to leave the EU.
“The economy grew and even did so at a faster rate than that predicted by the Office for Budget Responsibility in the 2016 Budget for the most part.
