After several days of market upset, a few reflections on last weeks momentous vote in Great Britain.
Even more obvious now than before the vote is that the biggest losers, economically speaking, will be the British themselves. The vote ushers in what will be several years of tremendous uncertaintyabout the rules that will govern the U.K.s trade with its continental neighbors, about the fates of foreign workers in Britain and British workers abroad, and about the countrys political direction, including perhaps where its borders will ultimately lie. Such fundamental uncertainty will depress business formation, capital investment, and hiring; indeed, it had begun to do so even before the vote. The U.K. economic slowdown to come will be exacerbated by falling asset values (houses, commercial real estate, stocks) and damaged confidence on the part of households and businesses. Ironically, the sharp decline in the value of the pound may be a bit of a buffer here as, all else equal, it will make British exports more competitive.
In the longer run, the uncertainty will dissipate, but the economic costs to the U.K. still will exceed the benefits. Financial services and other globally oriented industries, which depend on unfettered access to European markets and exchanges, will come under pressure. At the same time, the purported gains from freeing the U.K. from the heavy regulatory hand of Brussels will be limited, because Britain will likely have to accept most of those rules (without ability to influence them) as part of restructured trade agreements. Immigration is unpopular in the U.K., and slowing it was a motivation for some leave voters, but a more slowly growing labor force likely would also reduce overall economic growth.
