I fear there’s been a bit of goal-post moving by the anti-brexiteers. From “this will wreck the economy” to “the depreciation of the pound will have devastating long-term effects”
People, believe it or not, the depreciation of the pound is HELPING the British economy. Manufacturing is up, recession has been avoided.
Tyler acknowledges this, but writes about how the 10% depreciation of the pound make the UK poorer by some fraction of that decline. And indeed that can be true. If British wealth remains constant in pounds, and some of it goes to buying imported goods (and 30% of British consumption is on imports), then they are indeed poorer.
But things are more complicated than that. First off, if Brits own dollar or Euro denominated assets, they are actually getting richer in terms of wealth for pound-based future consumption.
Plus British wealth in pound terms is NOT staying constant.
Pre-Brexit, the FTSE was settled in around 6200. It fell to 5400 after the vote, but it is now trading at 71oo. That is a 14.5% rise in the value of British companies (from the base of 6200 not 5400).
And that my friends, is British wealth going up in pound terms by as much or more than the pound is depreciating.
Of course, to the extent that non-Brits own British shares, that dilutes how much British wealth rises when the valuation of British companies rise.
In fact it’s pretty hard (I think) to figure out the exact net international position of a country’s asset holders.
We do know however, that there is a large home bias to asset holding and common measurements of national wealth just roll in the full value of the stock market.
Sure, the stock market is not all of wealth and the stock market could fall on further news. But the pound depreciation doesn’t affect all wealth either and the pound could rise in medium term (I know it fell further last week).
To my eye, for now at least, I’d say it’s closer to the truth that post-brexit Britain is wealthier, not poorer. At the very least, please just consider that the economic consequences of Brexit may not be as bad as our pundits are telling us.