Brexit could unleash vicious cycle of low growth

The biggest economic risk from the Brexit vote is that it turns out to be the start of a vicious cycle of low growth and populist policies that lead to still lower growth and even more populist policies across the west.

It is still unclear what the Brexit vote means for the UK in the long run. Even if it causes a recession in the short term, it is always possible the alternative would have been worse.

For example, the UK decided to remain out of the euro and to keep the British pound even though it had joined the European Union. Years later, as the eurozone crisis unfolded, the UK May well have benefited from remaining out of the euro. Maybe the same will happen to the UK if it leaves the EU, although that point has not yet arrived.

Meanwhile, until the British government actually begins the process to leave the EU, the uncertainty gripping the markets have had a negative impact on the pound. Expectations of a Brexit lowering growth in the UK has prompted Bank of England Governor Mark Carney last Thursday to say he saw the need for more stimulus.

The post Brexit could unleash vicious cycle of low growth appeared first on FXTM Blog.

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