Exports set for £20bn Brexit boost after sterling’s dramatic plunge
Goods exports will jump by £20bn over the next year, cushioning the UK economy from a slowdown caused by the EU referendum, Standard and Poor's (S&P) has argued.
In a new report assessing the impact of the Brexit vote on the UK and Europe, the ratings agency also stuck by its claims the UK will avoid a recession, though warned the economy will be around 2.1 per cent smaller by 2018 than had the status quo prevailed.
The prospective rise in exports, along with the economy's resilience in the first three months since the 23 June vote, have convinced S&P the fallout from the vote over the next few years will fall in line with the more moderate range of pre-referendum forecasts.
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Summing up the economic performance of both the UK and the Eurozone since the vote, S&P's chief economist Jean-Michel Six said: "The sky hasn't fallen on either side of the Channel, contrary to concerns that the UK would soon fall into recession, precipitating a marked slowdown in the Eurozone. UK economic activity in the first months after the Brexit referendum has been stronger than some had feared."
Looking at previous periods of sterling devaluation, S&P said: "We found a ten per cent depreciation in the real effective exchange rate produces a four per cent boost to real exports of goods. Over the past 12 months to the end of August, the pound's real effective exchange rate lost 17 per cent. All things being equal, this should boost real exports by about seven per cent by the beginning of 2018."
Such a rise in exports would take the total value of goods sold abroad from £285bn over the last 12 months to £305bn. The outlook for services, £230bn of which are sold across the world including banking, insurance and law, S&P's Six told City PM is less clear since "goods are typically more elastic to price variations."
Six also said the UK could see a boost to growth towards the end of any negotiations with the EU if it looked like the two sides were on course for a broad and fairly extensive agreement, with little change in terms of access to the Single Market.