Actual economic effects cont...

[ManonLescaut]

Telegraph: Britain could be up to 70 billion worse off if it leaves the single market IFS warns

The respected economic think tank said that Britain could enjoy an extra 4 per cent in national income if it remains in the single market, equivalent to two years worth of growth.

The report claims that while leaving the EU will free the UK from an estimated £8 billion a year of budget contributions, the loss of trade from Brexit could hit tax receipts by a larger amount.

It found new trade deals would be unlikely to make up for lost EU trade, which accounts for 44 per cent of British exports and 39 per cent of service exports.

Telegraph: Treasury looks at quitting the single market

Officials say the talks have revealed a willingness among some top figures to scrap passporting despite early calls to stay in the single market from some quarters...

Mr Boleat cast doubt over the UK’s ability to secure a Norway-style deal to remain in the single market. He said accepting free movement of people and paying large sums to Brussels while accepting its rules would not be politically acceptable.

The BBA wants the UK to leave the single market but retain unimpeded access to EU markets.

Topsy the problem with your analogy is that the UK is part of that complacent western empire, in or out of the EU. It is another set of barbarians knocking on the door, we are part of that civilisation / liberal alliance. Walking out of the EU just exposes you to those competitive forces in full. Which might be OK if you had things to trade that they want to buy, which we do in terms of financial services, tech and science but, oh wait, their competitive advantage lies with their membership of the EU and all the benefits of access and collaboration.

And the EU is not inward looking, it does understand global trading patterns, and seeks to be part of them whilst holding to it's shared principles. So no it wouldn't be taking silver that was exchanged for slaves who died in their hundreds of thousands in the mines of Potosi.......

Actually topsy I don't think I have said so before, but thank you for your interesting and thoughtful posts - as a total ignoramous in this area I really appreciate that you provide plenty of food for thought, even though we are currently on "opposite" sides of the debate.

Agreed.

small - of course with the usual "everything being equal" caveat. If Boe put rates up to 2% from 0.25%, many GBP shorts will have to closed and it may well spike by 5% and it will make GBP carry far more attractive. In the long run, if that causes businesses to lost competitiveness then £ will slide back.

wwr - It is a fact that the EU SM is a protectionist block. It is true that Brexit can go either way - it will either reignite the fighting spirits or Britain will be diminished by global competitive forces (even that it will still be the top 10 largest economy for many decades). I am optimistic and I choose to take the chance. Britain does have things to sell, not as much as Germany perhaps and I am sure you know that as you are one of the most knowledgable remainer around.

I prefer "attempt to resolve its internal conflicts" to "holding to shared principles". The French and the Greek and the Spanish and the Italian etc want different things. I don't like CETA, but just look at how the different national interests play out (Part of Belgium today).

TheElementsSong
Thank you. The issue we have at hand is a complex one - in fact most international issues are complex. The other one that is prominent at the moment - the Syrian issue is also far from black and white. If EU is all good we won't be in this situation. If EU is all bad we won't be in this situation either - it would have been very clear cut. There are large amount of guess work as to where this whole EU thing will be heading and based on the same facts, we have made different decisions.

Have a good weekends.

wwr - Also there are differences between a strategic issue and an execution issue. A doctor and a Journalist do not inspire confidence but the issue is an execution one.

There are large amount of guess work as to where this whole EU thing will be heading and based on the same facts, we have made different decisions.

Yes I think you're absolutely right.

Smallfox

Sorry about the interest rate claim earlier on. I saw it from the point of a financial market participant.

Apparently the reality is more complex and in general, when developed countries increase rates their currencies strengthen in the short term while developing countries currencies depreciate due to the decreases in demands that you mentioned).

However, the correlation is not strong and the effect cannot be guaranteed.

The BBC Business Live page mentions an article in the Financial Times about complicated European automotive supply chains www.ft.com/content/c397f174-9205-11e6-a72e-b428cb934b78 quoting this:

"Bumpers for some Bentley Bentaygas, for example, are made in Europe but then sent to Crewe for inspection before then going to Germany for specialist painting. After that, they return to the UK for final assembly.

Another example of the interconnectedness of the supply chain is a fuel injector for diesel lorries manufactured by the US component maker Delphi.

This part uses steel from Europe which is machined in the UK before going to Germany for special heat treatment. The injector is then assembled at Delphi’s UK plant in Stonehouse, Gloucestershire, before being sold on to truckmakers based in Sweden, France or Germany.

If the resulting truck is sold into the UK market, the component or materials used in it will have crossed the Channel five times before the lorry is ever driven by the customer. If tariffs are applied at each stage, the cost could be substantial."

Also a tweet from Giles Wilkes twitter.com/Gilesyb/status/787910551804448768?ref_src=twsrc%5Etfw
"Great FT research shows how often car parts cross the Channel, amidst fears that the Single Market was working"

That's a very interesting article Patty.

Meanwhile the £ seems to be down again - in reaction to Downing Street claiming "full confidence" in the Chancellor?

Have we decided the collapse of the £ is a good thing or not?

On the one hand, we are told that we've needed a devaluation for years and it will reinvigorate our export sector, allowing our imaginative entrpreneurs to take the world by storm with untold new wonders. On the other, we are told that nefarious Remainers, some of whom are even foreign, have been evilly Talking Sterling Down and ought to be fired/sent back to Canada/clapped into the Tower. And in between I have read a post stating that the £ would have collapsed anyway, had the vote turned out the other way, but with the implication that a collapse of £ in the event of remaining in the EU would have been a bad thing.

Please can some economists clarify, in return I can offer detailed explanations of how to clone recombinant genes into plasmids.

TES

The question you need to ask is "is good/bad for who" and what is the life's objective.

Some economists believe that we are here to consume, and that we only produce because we need to trade for things that we want to consume. In that world, being perfectly happy and sufficient after working 3 days a week with a strong currency is a bad thing because that stops that GDP thing from increasing. In that world, you want a strong currency as long as you can and have fun while foreigners toil.

Some others believe that a higher the GDP number and higher bank balances are good things even if they have to work 24x7. In that world, a weak currency is good and the population can work longer to meet the world's needs while accumulating reserves (at the bank). The US made the Japanese strengthen her currency during the Plaza Accord. The Chinese too were pressured to let the Yuan rises.

In reality, it is going to be a balance of the two. There is also a timing consideration - what is good for us now may be bad for the future generations (de-industrialisation, depleting resources such as oil).

So, are we here to have fun or are we here to get rich (on paper at least)?

"Have we decided the collapse of the £ is a good thing or not?"

The collapse of a currency is never a good thing. Especially this sort of 20% write-off just doesn't happen to a major currency unless the prospects of that economy are downright terrible.

In 2007 our supplier told us they dont want US dollar. In 2012/13 JPY crashed and now come around. EUR fluctuate around 1.05 to 1.40 gbp.

Happens all the time.

I agree with this, but at the moment the bank is just tasked with aiming at an inflation target. There is no employment target for instance.

And why should there be? Unless we want a return to the days of socialism where the government (mis) managed every aspect of the economy.

LurkingHusband, I'd say there should be some balance between fighting inflation (good for capitalists) and employment rates (good for workers) because things have tilted too far away from the workers over the last 30 years. If we don't accept a little balance, you get angry people who do things like vote for Brexit. (We live in a democracy, and there are far more "wage slaves" than capitalists and rentiers.)

allowing our imaginative entrpreneurs to take the world by storm with untold new wonders.

We are not bad at inventions. Where we fall down is getting ideas to market, allowing others to reap the benefits.

Interesting, thanks topsy and Cote - so possibly some devaluation would be good but 20% down in a short time is not so good?

Pere agreed, historically we have been good at discovering and inventing things, but often dropped the ball when it came to developing further.

The grapes were probably sour anyway ...

(but then that just the sort of thing a European would say anyway ...)

It will balance out. Drop is combo of QE and speculators banking on a Remain result.

20% drop in a major currency over 4 months is not speculation. Do you have any idea about the volumes involved?

Have we decided the collapse of the £ is a good thing or not? confused

There's a legitimate debate to be had about whether sterling was overvalued. But the current collapse was not an orderly or controlled devaluation; it reflects not government policy decisions but market fears about whether this government has a coherent plan for Brexit and what economic damage might be done in the absence of any cunning plan.

My macro colleagues are also very twitchy about bond yields right now ...

On the one hand, we are told that we've needed a devaluation for years and it will reinvigorate our export sector, allowing our imaginative entrpreneurs to take the world by storm with untold new wonders.

I'm very dubious about this. A huge proportion of the UK's exports are made by big companies - not small companies competing on price but big companies competing primarily on their technical offering. The opportunity for my employer to dramatically increase exports is limited, not least because much of our inputs are imported and are more expensive now.

There were some good pieces in the FT last week about supply chains. Go and read them. They are spot on.

And in between I have read a post stating that the £ would have collapsed anyway, had the vote turned out the other way, but with the implication that a collapse of £ in the event of remaining in the EU would have been a bad thing.

These forecasts are usually made by the the same people convinced that the euro is about to collapse, and who claimed pre-referendum that the euro would suffer as much as sterling. And yet here we are, at about £1=€1.10. Just over a year ago a pound would have bought you €1.40 ...

Also, who is the collapse bad for? My colleagues and I, who've made money on commodity and stock markets thanks to sterling devaluation? Or the people without assets who are going to be tightening their belts when supermarket prices begin to rise?

Or the people without assets who are going to be tightening their belts when supermarket prices begin to rise?

This, essentially, is me We have jobs and savings, but as these are £ we are seeing them shrink daily. But I didn't want to be "all about me" which was why I wondered about the bigger picture - which is at best looking murky.

Cote you know exactly what is being played out here.

Well, I do. Not sure about you, though.

It's not "played" as in an insidious game but information is acted upon and built into the current price of the Pound. Not the same thing.

Semantics. Same antics.

You seem to think that's funny.

It's not funny to pass judgement on a subject you clearly know so little about.