Actual economic effects...

[Spinflight]

FTSE closed on Wednesday at 6138. Closed on Friday at 6138.

Long term borrowing rates have come down as brexit appeared more likely, 10yr ones from 2% down to 1.09% post brexit. Similarly all the European long term borrowing rates rose sharply. Lesson? We are a less risky and more credit worthy outside the EU than in.

One ratings agency did drop our credit worthiness, though oddly the last time they did was out of fear of Eurozone contagion. Seems completely at odds with the long term borrowing rates, which matter quite a great deal given our debts.

The pound dropped, quite significantly. It appears however that there was some 'unusual' activity in the market which forced it down whenever the Leave campaign polled well. To the extent of trying to sell it when there were no buyers.

Some people lost a great deal of money, probably dwarfing the millions contributed to the remain campaign, lets hope it was Goldman Sachs and JP Morgan. :)

[Bearbehind]

Ah, so reduced payments for those with tracker mortgages makes it all worthwhile then

[Globetrotter100]

It's just sealed the official statement that the BoE is throwing what little it has left to avoid a recession as a direct result of the Brexit vote. Does that seriously make you feel more confident, larry and if so, please can I have some of whatever you are having ?

www.bankofengland.co.uk/publications/Pages/news/2016/008.aspx

From the opening statement of today's minutes:

"Following the United Kingdom’s vote to leave the European Union, the exchange rate has fallen and the outlook for growth in the short to medium term has weakened markedly. The fall in sterling is likely to push up on CPI inflation in the near term, hastening its return to the 2% target and probably causing it to rise above the target in the latter part of the MPC’s forecast period, before the exchange rate effect dissipates thereafter. In the real economy, although the weaker medium-term outlook for activity largely reflects a downward revision to the economy’s supply capacity, near-term weakness in demand is likely to open up a margin of spare capacity, including an eventual rise in unemployment. Consistent with this, recent surveys of business activity, confidence and optimism suggest that the United Kingdom is likely to see little growth in GDP in the second half of this year."

[smallfox2002]

From the rate cuts of the past we can probably predict what will happen to the extra money from the mortgage rate reductions, most of it will still get paid into the mortgage. It won't boost consumption.

Interestingly for lower interest rates to work in order to stimulate growth we need to have fairly strong levels of consumer confidence and business optimism, which are low at the minute. This rate cut won't have the desired effect, neither will the QE planned.

The thing that would stimulate the economy? A people's Q.E , say give every tax payer £1,500 ( which would be about the same as the £60bn QE), there would be the short term boost as people spent it, but also the longer term boost as those who've used it to pay down debt are able to spend the money they would have paid their debts with.

[Globetrotter100]

smallfox

It's nice idea, but the people's QE concept was tried in Australia circa 2009(?). It was widely joked about as successful boost for Chinese economy (specifically, sales of imported wide screeen TV sales shot up) and the local industry boost being focused on prostitutes (cash payments, black market).

I purchased neither any popped it on the mortgage...

[EllyMayClampett]

I think smallfox is right that when the money gets into poorer people's hands, most of it gets spent. It turns out that money doesn't trickle down. But it definitely trickles up! Give money to the poor and it will quickly end up in rich people's hands after a few iterations of "the game."

[topsy777]

EllyMayClampett

"trickles up! "

Yup indeed. But our £880k per year central banker do not need to understand that. If it is not in the spreadsheet, so it doesn't happen.

The 'trickle up' should boost a quarter GDP though as corporate and weekly rental companies report higher profit.

[TheElementsSong]

Robert Peston on Twitter: "The 3-year cost of Brexit is 2.5 percentage points of lost GDP or national income, even with its exceptional stimulus, says Bank of England" and "Brexit-induced lost GDP for 3 years is equivalent approx to year's spending by government on education, despite costly monetary stimulus". So... is there any truth in this BoE prediction or he a Remainiac who is Talking Britain Down?

[HPFA]

a Remainiac who is Talking Britain Down?

Really Elements you should know the answer to that one. Anything that goes wrong after Brexit is actually the fault of Remainers for not being positive enough!!

[mollie123]

but I thought one of the Project fear weapons by the remain campaign was that IRs would rise from their derisory 0.5% (where they have been for SEVEN years which is intended to help us out of the last 'recession' - that worked well didn't it )
so more QE, interest rates slashed -( who is saving for a rainy day or a house deposit? ) - but it is all the fault of Brexit of course
And mortgage holders are laughing all the way to the bank.
I feel so sorry for the generation who cannot afford to save for a deposit on their own house while house prices are forced up out of their reach. This country is still looking after the indebted, the rich and the powerful.

[smallfox2002]

"but it is all the fault of Brexit of course"

Which is what the MPC are saying so yes, I think that it probably is.

Mark Carney said that interest rates may have to increase long run because of Brexit, which has not happened yet.

Lets see what predictions have come true:

Pound has crashed... yup
British Scientists finding it hard to get funding... yup
Consumer confidence low.. yup
Business optimism low yup..

This is just in the last 6 weeks, remember that Cameron had said that he would invoke article 50 straight away, this hasn't happened so not all of the predictions can be called "inaccurate" because the situation isn't the same.

[GhostofFrankGrimes]

The rate cut will knock £10-£20 a month of the average mortgage, if the lender passes the cut on. Its chicken feed. The BoE's hand has been forced by Brexit, they are in an impossible position and can only offer more of the same i.e borrow and spend. It doesn't work.

[prettybird]

Didn't Australia escape a recession during the Financial Crisis - perhaps because of what they did - let alone suffering a double dip recession ?

Although I see that some pundits are predicting a recession in Australia in 2017 - although I suspect those experts/pundits are those that subscribe to the austerity economics model which decrees that a recession must follow at a certain level of indebtedness and ignore the exceptions as "exceptions"

[topsy777]

Also UK 10 years gilts is now 0.68%.

prettybird
It was what China did. Then Aussie Property and mining sectors boomed.

[smallfox2002]

The Chinese economic growth was based on government investment, not consumption based demand.

Maybe we should follow their way and have a bit of Keynesian stimulus.

[prettybird]

You mean, the Government should save during the Boom years so that it can spend during the bust recession years? What a strange concept

[smallfox2002]

Well, the problem with that for the Labour years is that they did run a surplus for 3 of them, and had a small deficit untill the crash of 08, about the same level they had been left by the Tories.

[GhostofFrankGrimes]

An economy based on house price speculation and consumption of services requires constant spending by the consumer. The neo liberal way of thinking has been a house of cards for decades. With interest rates on the cusp of negative it is a busted flush.

I wonder who Tory voters will blame for the economic problems - Brexit or Osborne (and thus admitting austerity was a crock)?

[prettybird]

My major gripe with Brown is that rather than crowing that he'd banished Boom & Bust, he should have spent less in the "good" years - it shouldn't have been a small surplus, it should have been a large one.

He could have - and here's a novel concept - set up a Sovereign Wealth Fund (maybe even using North Sea Oil - but that was too much of a risk as it would've have played into the SNP's hands ).

Not raised Pension Funds with a Windfall tax, with nothing to show for it, for a start. He helped kill Final Salary Pensions.

It was massive hubris to suggest he'd banished Boom & Bust

I've been a Keynesian since Uni and I'm not sure I'll ever forgive Labour (both Blair and Brown) for what they did.

.....and breeaaaathe.....

[Globetrotter100]

prettybird I always say Australia smiled it's way out of the recession But yes I definitely agree that at least some was due to active policy like the 2% rate cut and 100% bank deposit guarantee, and possibly the handouts too. Australias downturn also came later than USA and UK and to give credit where due, the shiny new Kevin Rudd took decisive action at the right time, learning from recent history. It was a dip for sure, but not a big one like UK.

There was another dip circa 2011, but again no major dramas. Sydney property prices declined around 10% (prime more, cheap stuff less) but mortgage rates were over 7% Q3 2010 so there was huge scope to stimulate the economy through reducing interest rates. It's almost run out of that scope now, China's looking scary as hell and Sydney property prices have ground to a halt (little net movement 12 month in y old home anyway). The Ozzy dollar is looking slightly too strong relative to its economy in my humble opinion.

When everyone knows there's no ammo left in the attic, things can go wrong fast. I'm assuming that's why gold shot up (in USD not just GBP) immediately following the BoE announcement today.

I'd love to be confident and optimistic about it though....

[prettybird]

Brown sold our gold.....

[Globetrotter100]

...and YY to Gordon Brown being an outrageously incompetent waste of space. Still can't believe he got away with selling the UK gold stash at rock bottom.

[Globetrotter100]

X post

[prettybird]

We can agree on that!

I'm hoping that history will be damning of Blair and Brown's legacies - and now those Cameron, May, Gove and Johnson I think Farage will get away with it for the nonentity he really is

Doesn't help all the people whose lives they will have destroyed - both here and in the Middle East

[smallfox2002]

Like I said the brown spending in the good years was improving thinks like the NHS and schools which had been left to rot under the tories.

I think history will be far more complimentary to brown, he managed the economic crash very well and was the one who focused the international response to it.

The selling the gold thing is a bit of a red herring. He wasadvised to do so by the treasury and boe.. and the profits were used to.buy other assets

[topsy777]

^ I think history will be far more complimentary to brown, he managed the economic crash very well and was the one who focused the international response to it. ^

I totally disagree although he probably will not be crowned the worse PM. At least he is not going around the world using his exPM credential to making millions.