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.

In which case it still won't raise interest rates!

"decided to holiday in UK rather than Europe or abroad due to low pound"

No doubt some here will see this as a great injustice

I see this as an opportunity to close the current account deficit and stop living beyond our means. That Iphone will have to last 20% longer before it is upgraded (so 24 months becoming 29 months), unfortunately.

The current account deficit is actually likely to get larger because of the amount we import, and with EU passporting likely to be removed from banks we'll see a fall in exports.

Marshall-Learner condition isn't going to be met.

So you are saying we are going to continue to import more or less the same amount (in quantity term) despite the devaluation.

There is no problem then. Might have to pay a bit more £ but no real reduction in standard of living as there is plenty of £ in the kitchen drawer.

It depends on the PED of imports and exports doesn't it.

PED for many imports is inelastic.

Yes. It depends what you mean by inelastic. Maybe some cannot live without iphone 7 and in that case demand for I7 is inelastic. For others, it is optional.

And in any case, one cannot have inelastic demands that one doesn't have the £ (or pre-saved $/Eur) to pay for.

A real example of how 'All Gone' looks like:

FT : M&G looks to Luxembourg after Brexit vote

M&G estimates mainland European investors account for 10 per cent of its assets. It has decided to build an additional presence in Luxembourg to cater to client preferences for funds registered in the grand duchy.

M&G is unlikely to move UK-based staff to Luxembourg, but it may add additional employees to the new business at a later date.

Sorry. But for the BOP deficit to be reversed the ML condition is must be met, as we import so many relatively price inelastic products ( many of our factor inputs are imported too) this means that its unlikely.

We may see a J curve effect, but would still be in BOP deficit, a surplus is really unlikely to be achieved.

The prices may be inelastic, but there is an option called alternative.

These are the top 10 imports:

Machines, engines, pumps: US$83.4 billion (13.3% of total UK imports)

1. Vehicles: $76.8 billion (12.3%) [Benz Audi BMW ?]
2. Electronic equipment: $61 billion (9.7%) [iphone? 60 inches OLED? ]

Oil: $50.8 billion (8.1%) Pharmaceuticals: $33.1 billion (5.3%)

1. Gems, precious metals: $30 billion (4.8%)

Medical, technical equipment: $18.2 billion (2.9%) Plastics: $17.7 billion (2.8%) Aircraft, spacecraft: $15.6 billion (2.5%)

1. Clothing (not knit or crochet): $11.3 billion (1.8%)

Significantly scope to reduce 1,2,3,4,5 but of course perhaps the BOP will persist (as in some 3rd world case) as the elite will continue to have stack of £/$/Eur to pay for them.

Your list is incorrect cause it doesn't include oil, which using the data I have access too. The "alternative" depends on how close the substitutes are, and how Price elastic those goods are.

I don't for example see more people buying British built electronic goods or cars. Cars actually have other larger determinants of demand than price.

"M&G is unlikely to move UK-based staff to Luxembourg, but it may add additional employees to the new business at a later date."

Correct, it's not likely to move UK based staff to Luxembourg, but it is very likely to move currently UK base business to Luxembourg, meaning fewer UK jobs, smaller UK tax take etc. etc.. Do you actually think about what you type before typing it?

Messiah,

Looks like your premonition isn't working properly. Read the article.

Smallfox
Oil: $50.8 billion (8.1%) (5th item, I didn't number it as this is less elastic).

"I don't for example see more people buying British built electronic goods or cars. "

No they don't but they could substitute iphone for a LG. This might be gross injustice in someone's book but others can live with that.

Cars . JPY/GBP hasn't been that bad. So perhaps buying Lexus is a sensible substitute to BMW. Failing that, even a Nissan Qashai will take you where you want to go.

Demand for cars isn't that related to PED though.

Someone who wants a BMW, Merc or Audi isn't going to buy a Nissan or Honda. People won't by British built cars, oh and the Japanese ones will cost more as most are built in plants in the EU.

BTW the Qasqui is built here.

"BTW the Qasqui is built here."

Yes. Exactly.

But parts are brought in from EU factories, billed in Euros.

Input costs will also increase.

But we may see a J curve effect, but I don't think the fall in the exchange rate will be that good for the UK, especially as our major export is services.

I don't know Topsy, you didn't actually link to anything!

But from what I know from my contacts in the City, there are going to be an awful lot of offices opening elsewhere in Europe, and they are not going to be taking UK employees with them, but they will be taking business currently done in the UK with them. Even if you don't think M&G are going to do that (yeah, right), plenty of other companies are already starting to.

I think they might take some of the high earning and high tax paying employees with them. They won't be taking people doing routine clerical work or cleaning offices.

Roger Bootle writes today in the Telegraph

Pound went down to $1.23 today, predicted to be $1.20 by the end of the year and $1.10 by mid 2017.

That is quite a disaster.

I wonder what sort of catastrophe Japan suffered when Yen fell from 80 to a dollar to 122 to dollar then of course it went back up to 100. I also wonder what sort of calamity the American suffered when dollar fell from 1.5 to 2 to a £. When Euro fell from 1.05 to a £ to 1.40, the Euroland must have been devastated - and then it went back up to 1.10 today of course.

Part of the exchange rate is also due to Dollar strength.

Japan has a surplus on the BOP, that is the difference.

The states saw it BOP improve but had a J curve effect, but the BOP never went into surplus, and it also didn't improve that much more from the original position.

So see Topsy, you're overly simplistic in your approach to this. You just simply state that the fall in the currency will improve the BOP, its unlikely in our case.

topsy777: "JPY/GBP hasn't been that bad"

GBPJPY is down just shy of 18% since 23rd June.

By anyone's definition, that's surely a bloodbath.

TheFO

So would do you call the situation when JPY fell from 115 to a £ (2012) to 190 to a £ (Mid 2015) ?

Smallfox

Yes, the last time GBP fell from 2 to 1.4 BOP did not close. For that to happen, the vendors and investors need to fund us or stack of £,$,Euro in the drawers need to be taken out.

Perhaps UK is richer than we think with lots of hidden £,$,Euro (or similar assets) and we can go on living beyond our income for a while longer.
We will see.