The repercussions of Brexit will be seismic – turmoil, followed by uncertainty. Things are never going to be the same again.
In the short term, a sliding pound will add to inflationary pressures, pushing down real wages. Any boost to exports from a lower-valued pound will depend on likely trade renegotiations with the EU.
The uncertainty surrounding the UK’s exit from the EU will have a depressing effect on investment, both domestic and foreign, and will inhibit growth. Recession remains a real possibility. This would be in line with the prediction of the majority of economists.
The reaction of the Bank of England will be important. It will face pressure to raise interest rates due to the inflationary threat from Brexit. Any rate rise would put further downward pressure on the economy.
The government’s stance will also be crucial. George Osborne, the chancellor of the exchequer, talked about an emergency budget in the event of Brexit. This would be the wrong course of action; more austerity at this stage will simply depress the economy and impose greater hardship on UK citizens. Osborne would do better to abandon his surplus target and to loosen fiscal policy. The task for the Labour Party is to promote an alternative (anti-austerity) economic policy that addresses the challenges of a post-Brexit economy.
One important message from the EU referendum is that a majority of the British electorate believe that economic policy and the economy is not delivering for them. Sadly, Brexit is not going to address people’s real concerns; instead, it is going to mean more hardship and pain. This is a bad day for the UK.