Nicholas Oulton's picture
Affiliation: 
London School of Economics
Credentials: 
Senior Visiting Research Fellow

Voting history

Brexit and financial market volatility

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Question 1: The value of the pound fell sharply this week. Do you agree that the public debate on Brexit can be expected to (continue to) lead to a substantially higher level of exchange rate volatility in the upcoming months?

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Answer:
Agree
Confidence level:
Very confident
Comment:
If the opinion polls give conflicting and changing results as to the likely winner of the referendum campaign, then I would expect exchange rate volatility to be high. This seems quite likely. If on the other hand a clear winner emerges in the polls early on (whether leave or remain), then volatilty will be low. However the level of the exchange rate (up or down) will reflect the expected result.

Market Turbulence and Growth Prospects

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Question 2: Do you agree that the falls in share prices, low oil prices and the slowdown in some emerging market economies will have a significant negative impact on the UK’s economic recovery?

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Answer:
Disagree
Confidence level:
Confident
Comment:
Low oil prices are a positive for the UK economy. Though they are bad for Scotland they make secession less likely, thus reducing political risk for the UK as a whole. The slowdown in emerging markets including China is obviously a negative for the UK but I would not expect it to be a major one quantitatively. The UK stock market is more of a worry since it may be a good indicator of confidence and the willingness to invest. But the FTSE 100 has been declining steadily since April last year (partly due no doubt to expectations of a rise in US interest rates), so there is no sudden change here.

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Question 1: Do you agree that economic growth prospects for the global economy have seriously deteriorated?

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Answer:
Disagree
Confidence level:
Confident
Comment:
Prospects have deteriorated seriously for oil-producing states but not for for the global economy . The fall in the oil price is largely due to a rise in supply relative to demand. So for oil-importing states it is a benefit. The recent fall in the Chinese stock market looks more like a correction of a bubble than a reappraisal of fundamentals. It is not very relevant for the rest of the world. The extent of the slowdown in Chinese growth (pretty small on official figures) is what really matters but it is unlikely that the fall in the Chinese stock market is an accurate measure of this.

China’s growth slowdown: likely persistence and effects

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Question 2:

Do you agree that if the Chinese slowdown turns out to be persistent, it will have a significant impact on UK growth (say, in the order of a few tenths of a percentage point) and/or it will justify a material change in monetary policy (for example, in terms of the timing and speed of a return to ‘normal’ interest rates) and fiscal policy (for example, in terms of the timing and speed of fiscal contraction).

Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
Question 2 is not clear about the time scale. Is it the same as in Question 1, 10 years? If so, I disagree. In the medium/long run UK growth does not depend on demand but on real factors (demography, total factor productivity, and innovation). The only qualification to this is that the UK has benefited from a terms of trade effect stemming from past Chinese growth: the opportunity to import Chinese goods at ever cheaper prices, whether directly or incorporated into other products (e.g. ipads). So if Chinese growth slows due to lower productivity growth then this favourable effect will be reduced. Over shorter time scales, where demand effects call the tune, I would expect the main effects to be on commodity exporting countries (not all emerging -- Australia is in this category). Exports to China are currently only about 1% of UK GDP. So indirect effects via other countries would have to be pretty big to impact the UK economy significantly.

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Question 1:

Do you agree that the Chinese economy is likely (say more than 50% probability) to maintain in the medium term (say, for at least ten years) a rate of annual growth exceeding 6%.

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Answer:
Strongly Agree
Confidence level:
Confident
Comment:
The slowdown from 10% to the current 7% is already very substantial. I see no reason to think that a further slowdown is likely, given the huge investments in infrastructure, R&D and innovation which China has made. Of course it is possible that Chinese growth has been overstated for some systematic reason. But the question was about the slowdown, i.e. change in growth rate, not the level of the growth rate.

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