Date
23 March 2017
The cheap pound will eventually lure back investors and boost exports. It's also good news for the tailors and their customers at Savile Row. Photos: Bloomberg, Reuters
The cheap pound will eventually lure back investors and boost exports. It's also good news for the tailors and their customers at Savile Row. Photos: Bloomberg, Reuters

Despite Brexit fallout, the gloom is overblown

It’s been a fortnight since the result of the referendum in the United Kingdom was known, and a heavy air of despondency has settled over many of those who, like myself, supported the UK remaining in the European Union.

Some of our worries are warranted.

British politics is in disarray with the governing Conservative Party embroiled in a brutal leadership battle and the main opposition Labour Party tearing itself apart.

The political turmoil, uncertainty about future trading relations and the gloomy near-term economic prognosis have led investors to vote with their feet and the pound has plunged to a three-decade low against the dollar.

However, as Mark Twain might have said, reports of Britain’s economic demise are greatly exaggerated.

I am actually cautiously optimistic about Britain’s longer-term economic prospects.

Nassim Taleb, the statistician and author of The Black Swan, described economies as being more akin to organic systems such as the human body than to mechanical ones.

Just as our bodies heal when we are injured, the self-correcting properties of such systems mean that the British economy will bounce back from this shock.

A more challenging economic environment will force unprofitable companies out of business, separating the wheat from the chaff.

This process of creative destruction ensures that resources are redirected to more productive areas, thus strengthening the economy.

Although living standards will be temporarily hit, the cheap pound will eventually lure back investors and boost exports.

In fact, the FTSE 100 has already risen above its pre-Brexit level and UK manufacturing growth just prior to the vote was the fastest for half a year due in part to the pound’s weakness.

The task for the new prime minister is to address the divisions in society and negotiate the best possible deal with the EU.

With change comes opportunity. Freed from the yoke of Brussels, a new Conservative government can cut business-stifling red tape, pursue trade deals with emerging markets and put in place an immigration system that welcomes people from around the world with the skills and capital needed by the economy.

Therefore, I don’t share many of my fellow “Remain” friends’ defeatist attitude.

I look forward to taking advantage of the weak pound when next in London to do my bit for the UK economy by spending on some Savile Row tailoring and significantly adding to my library.

Let’s keep calm and shop on!

– Contact us at [email protected]

CG

Barrister and member of Path of Democracy

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