Question 2: What is the probability that the UK experiences such a significant disruption to financial markets and asset prices following a vote for Brexit on 23 June?
There would certainly be considerable market volatility. I am reasonably confident that the authorities have contingency plans in place, and the appropriate tools, to deal with the most adverse possible impacts (eg a loss of liquidity in certain markets). However, it is certainly possible, if not probable, that volatility would be such as to result in significant (not in my view catastrophic) negative short-term economic impacts.
There is considerable uncertainty: and, whichever way the referendum goes, specifying the counterfactual will be close to impossible. However, the arguments set out in Armstrong (2016) are convincing, in particular the loss of the UK's current privileged access to the financial infrastructure of the eurozone.
It will have a significant impact on wages for some workers and hence some companies. But the overall macro-level impact on wages and prices will be relatively small. Firms and sectors will adjust through a variety of mechanisms, one of which may be higher prices, but even in the retail sector the impact on consumer prices will be quite difficult to discern.
In my view, the main thing we have learned from the considerable body of research on the impacts of minimum wages is that ex ante predictions based on theory or prejudice are worth little - those who predicted large negative impacts of the UK NMW now look foolish. Impacts are context dependent - it depends on time and place, as well as of course level. So I think anyone who states with very high confidence that they know what the impacts of the substantial increases now planned will be is mistaken. It will depend crucially on wider economic and labour market developments over the next few years. That said, given current forecasts of relatively sluggish growth (but no recession) I would expect some, significant - but not, I would emphasise, huge or disastrous - negative employment impacts
The Charter is poorly designed, and indeed represents a significant step backward compared to the fiscal framework that operated during the previous Parliament. In particular, it is simply not credible, in the strict sense of the word, as d) below demonstrates. There are at least four significant defects:
a) the surplus target. There is no theoretical or empirical justification for targeting an absolute surplus. The Treasury, in July, claimed that “Running a surplus on the
headline measure of borrowing is the only sustainable way to bring down debt as a share of GDP in the long term.” As a matter of arithmetic, of course, this is simply wrong. In fairness to the Treasury, there is no definitive answer here. But recent IMF research suggests that the costs of aggressive debt reduction (in terms of reduced growth and investment now) are rather high, while the ‘insurance’ benefits of a low debt level are rather low.
b) the lack of any distinction between current and capital spending, giving the government a further incentive to under-invest (as it has for the last 5 years) at time when long-term interest rates remain very low
c) the fact that (post 2019) the target applies in every year; this almost guarantees an unnecessary and damaging degree of pro-cyclicality
d) the poorly designed and non-credible "get-out clause" in the case of a negative shock. As the OBR pointed out, a sustained period of 1.5% growth would lead to a fiscal shortfall of about £20-30 billion without triggering the clause. In principle, this would have to be made up by tax increases or additional spending cuts. This is simply not remotely plausible. It
is inconceivable that the government would respond toa prolonged period of slow growth by implementing an extra £20 billion in spending cuts (on top of an already very demanding set of reductions); or that (particularly given its commitment not to raise the rates of the main
taxes) it would put up taxes by this amount. So in such circumstances, there is absolutely no doubt that (as in the last Parliament, but against the backdrop of a much more elastic fiscal rule) it would, entirely sensibly, allow the progress of deficit reduction to slip again. In
other words, for the period of this Parliament, the new fiscal rule is simply incredible, in the strict sense of the term: nobody should believe it.
The CFM surveys informs the public about the views held by prominent economists based in Europe on important macroeconomic and public policy questions. Some surveys focus specifically on the UK economy (as the CFM is a UK research centre), but surveys can in principle focus on any macroeconomic question for any region. The surveys shed light on the extent to which there is agreement or disagreement among these experts. An important motivation for the survey is to give a more comprehensive overview of the beliefs held by economists and in particular to include the views of those economists whose opinions are not frequently heard in public debates.
Questions mainly focus on macroeconomic and public policy topics. Although there are some questions that focus specifically on the UK economy, the setup of the survey is much broader and considers questions related to other countries/regions and also considers questions not tied to a specific economy.
The surveys are done in collaboration with the Centre for Economic Policy Research (CEPR).
Brexit: the potential of a financial catastrophe and long-term consequences for the UK financial sector
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Question 2: What is the probability that the UK experiences such a significant disruption to financial markets and asset prices following a vote for Brexit on 23 June?
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Question 1: Do you agree that there would be substantial negative long-term consequences for the UK financial sector if the UK were to leave the EU?
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National Living Wage and the UK economy
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Question 2: Do you agree that the new NLW will have a muted effect on wages and prices?
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Question 1: Do you agree that the new National Living Wage is likely to lead to significantly lower employment?
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Autumn Statement & Charter for Budgetary Responsibility
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Question 2: Do you agree that the Charter for Budgetary Responsibility is helpful in underpinning the credibility of fiscal policy?
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