LONDON — 72% of economists wrongly predicted that the Brexit vote would plunge Britain into a recession, according to Dr. Andrew Lilico, a Leave campaigner and director of policy group Europe Economics, who cited a Bloomberg poll of economists held immediately after the June vote.
Speaking at a panel discussion on Brexit at the Queen Elizabeth II Conference Centre, Westminster on Monday, Lilico said that economists’ failure to predict the UK’s better-than-expected economic performance since June meant that their long-term forecasting was also less credible.
He said: “72% of economists in a Bloomberg poll immediately after the EU referendum vote predicted that there would be a recession in 2016 or 2017. In a Royal Economic Society survey of economists, 90% said there would be a short-term loss associated with Brexit.
“Then you had the Bank of England cutting interest rates in August: It wasn’t as though it was some sort a fringe idea that there was a problem economically following the referendum,” he said.
“That was the mainstream view, enough [for the Bank of England] to introduce an interest cut — and it was wrong.”
Former business minister Vince Cable, who also sat on the panel, said that people in the Remain campaign — which he supported — had behaved “foolishly,” but said economists were right in their assessment of the economy as “fundamentally weak.”
Lilico said that consumer spending — which has not slowed as much as expected since the Brexit vote — indicated an economic confidence which economists have not recognised.
“The reason it was natural to assume there would be a short-term recession was that the Treasury believed that there would be something of the order of 6% of loss of GDP growth by 2030,” he said.
“So if you were going to have a loss in the future you’d have expected forwards looking consumers — anticipating such a loss in their income over the medium term — to bring forward to today some adjustment in their consumption in the short-term. They didn’t do it.”
“What does that mean? It means the economy doesn’t believe it is going to be materially worse off in the medium term. Now the economy might be wrong in that view, but normally economists say that the economy’s view in these kinds of matters is the best predictor of what’s going to happen.
“I think that what we see is that the economy doesn’t believe it will be materially worse off in the long-term,” he said.
Cable said the UK economy was in a “very bad position” as it heads towards Brexit, largely because recent economic growth has seen has been driven by borrowing.
He said: “We have had growth in the last year. It’s almost entirely driven by borrowing. The British Savings Ratio is now at its lowest level in historical memory. We’ve had a bit of a consumer boom fuelled by borrowing, and by confidence in the housing market — which is always a big driver of consumer spending.
“But it’s an old-fashioned British consumer boom, and the truth is — I’m in a bit of a minority among my colleagues — I always took the view that the British economy was fundamentally rather weak. We’ve had chronic under-investment, chronic lack of innovation, chronic lack of training for many years, and when we have spurts of growth it’s usually driven by consumer borrowing and the housing market which is very dangerous.”
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