Leave voters' spending has grown more quickly than that of Remainers, Bank of England research suggests
, a horror video-game released earlier this year, shooting a zombie does not necessarily kill it. Even after a headshot, the beast may continue to lumber forward in pursuit of the player’s brains. The British economy has behaved in a similar fashion since the Brexit referendum of 2016. Many pundits had predicted that the uncertainty caused by the vote to leave would send Britain into recession, with unemployment shooting up and wages collapsing. But the economy has plodded on.
Smoothing through quarterly data, since the referendum the economy has grown at a quarterly rate of about 0.4% . That is far from impressive by historical standards. Surprisingly enough, however, it is about as fast as the average growth rate across the7 over the period; President Donald Trump’s trade war has dented global economic growth. And Britain’s labour market has strengthened. The unemployment rate has continued to decline, and now sits around a four-decade low of under 4%.
In recent months growth in consumption spending has slowed—perhaps households became nervous as Brexit day appeared to be just around the corner. Yet another source of demand has taken its place. Breaking from its deserved reputation for fiscal austerity, the Conservative government has turned on the spending taps. A spending review in September promised £13bn of extra funding for public services and investment. In July doctors and dentists got an above-inflation pay rise.
The rise in living standards comes at a useful time for Boris Johnson, the prime minister. In Britain’s three most recent general elections, incumbents did well when real wages were rising smartly, and badly when they were not . With hindsight, it is clear that Theresa May picked pretty much the worst possible time to go to the polls: in June 2017, the month her snap election was held, real wages fell by 0.
Low levels of capital spending by firms will weigh on Britain’s productivity, which already has barely grown in the past decade. That will hold back increases in real wages. And the drag from Brexit will become much more noticeable when it actually happens. Over the long run Mr Johnson’s Brexit deal would reduce incomes by about 6% compared with what they would otherwise have been—only a marginally better outcome than the estimated cost of leaving thewith no deal at all.
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