How Economically Scared Should We Be?

'Project Fear' (the economic consequences of Brexit) now looks, to the embarrassment of Chancellor Osborne, somewhat overblown.

There was a sharp reaction in the markets immediately afterwards but a rapid recovery soon after that. The Bank of England acted swiftly and competently to restore order. This is not a reason for complacency because there will be costs to the adoption of the new national policy. The question is - are these to be costs of adjustment towards a new stability and growth or do they represent a national write down and a shrunken economic base?

The test is around October/November when Carney's measures have kicked in, we have a broad idea of the tenor of the Brexit negotiation and we have a Prime Minister in place who has got through the Tory Party Conference. The business community is currently still digesting data produced amidst hysteria. Sensible policies take time to build confidence in the business community ... say, three months to get the policy decisions agreed and another three to six months to see their effects. We are in existential trouble only if we are in such trouble in the Spring of 2017.

Brexit enables fresh tactical and strategic thinking. It is tectonic. It permits companies to ask questions they should perhaps have been asking themselves some time ago. The danger may lie in media-fuelled political instability continuing to suggest that Brexit may be reversable - creating a hedging approach to investment. The situation will be clearer in September if we have a Tory PM committed to Brexit and no General Election, a marker that Brexit will be difficult to reverse. Theresa May's initial statement was driven not only by political considerations but by economic realities.

The Commission's claims about negotiations taking years could be unwound with a very simple agreement between May (say) and Merkel that gives both sides what they really want - continued profitable trading and UK Parliamentary sovereignty and control of its borders. The strategy of a Tory Government will be to make anti-Brexit a non-issue because everyone has moved on by the time any remaining fanatics in New Labour are making it the centre-piece of a 2020 Manifesto. By then (it will be hoped), the new settlement will be as fixed as the repeal of the Corn Laws in 1846.

If there is to be a strategic economic shift, it may be from a model of international rentier income based on services that return to London to be redistributed outwards (or through Brussels to the British margins with its cut taken) towards national capital formation with export revenues returning to England and Wales as a whole. The London creative and professional classes, non-innovative university towns, the non front line public sector and the Celtic margins are likely to lose out relatively without anti-austerity intervention which is why these groups are at the forefront of Remain.

We see a slow down until the mid-Autumn but a bounce-back by the Spring. The problems for Britain lie outside it now - in the shocks created within the Eurozone by the European Union's intrinsic instabilities and in whether global markets outside the EU are going to be interested in British goods and services. Anecdotally, most of the moaning in our circle has come from particular sectors pre-committed to Remain but others are over the moon at prospects ... especially high end exporters. Is this now to be a squabble between economic sectors rather than anything more existential?