Brexit induced recession ahead and worse to come

It gives me no pleasure to say this but Brexit is going to be extremely costly to the UK economy over the next 3 to 4 years. The effects of the Brexit vote are immediate. There is the increase in uncertainty and decline in both consumer and business confidence. This will mean lower investment, lower foreign direct investment, less job offers and a rise in unemployment. There will also be a big hit to what economists call "discretionary consumer expenditure" that is big ticket items like cars, holidays, purchases of white goods etc. There has also been a big hit to the commercial and residential property market firstly in the way of reduced volumes and later we should expect big price falls especially in London where prices are absurdly high anyway. The only offsetting thing is the rapid depreciation of sterling which will to some extent boost exports.

The other reason to worry is the scope for a policy response is quite limited a cut in base rate from 0.5% to 0.25% is peanuts and unlikely to do much. Further Quantitative Easing is likely but is pretty much a useless and actually destructive policy. Then the scope for fiscal expansion in the way of tax cuts and increased government expenditure is limited as the fiscal deficit is too big and likely to deteriorate significantly because of a prolonged Brexit induced recession. The recently published fall in the flash Purchasing Managers Index to well below 50 with a reading of 47.7which indicates economic contraction is an early warning sign that things will be much worse than the 1% of economic growth predicted recently by the IMF. I am afraid that Britain will face a nasty and prolonged Brexit induced recession especially once Article 50 is actually invoked and the hard task of getting a new trade deal and relationships with the rest of the world starts. There is a lot worse to come.