Morgan Stanley, one of the world’s biggest financial institutions has predicted that the uncertainty surrounding the UK’s future following the vote to leave the European Union will push the country into recession by the end of 2016.
But it has also effectively admitted that it is not really sure what that recession will look like, and cannot say with any certainty what is going to happen to the British economy going forward.
In research compiled by economists Jacob Nell and Melanie Baker, Morgan Stanley argues that the environment surrounding the British economy is so uncertain that trying to forecast exactly what the coming recession entails, saying that “high uncertainty means low confidence in forecast detail.”
Here is the crucial extract from Morgan Stanley’s “UK Macro Summer Outlook” note, circulated to clients this week (emphasis ours):
“Given pervasive uncertainty over how the UK’s relationship with the EU will develop, the potential for major political repercussions and economic consequences,and the lack of a clear precedent, we have high confidence in the direction of our forecast and the central role of investment, but not in the depth of the slowdown or profile of the recovery.”
Nell and Baker note that one of the biggest risks they see in terms of their forecasts being wrong, is that the coming slowdown in the UK economy — which will eventually turn into a recession — could actually come about slower than previously expected. That is an idea already put forward by the Bank of England, which on Wednesday argued that: “As yet, there was no clear evidence of a sharp general slowing in activity.”
Here is more from Morgan Stanley:
“In particular, we see a risk that the slowdown could come through more slowly,e.g., if firms complete investment under way and only cut back on new investment more gradually,and that the recovery could also be more gradual,e.g., if the policy response is less robust or uncertainty persists.”
While economic forecasts turning out to be wide of the mark isn’t particularly rare — just look at the way IMF growth forecasts have consistently been revised downwards in recent years — what is rare, is an organisation admitting that it isn’t particularly confident in what it says will happen. Morgan Stanley’s lack of confidence in its own forecasts just shows how insanely uncertain things are in Britain right now.