Brexit is clearly a first order political shock within Britain itself, perhaps ranking just behind the miners’ strikes in the 1970s and 1980s as the most disruptive shock since the Second World War. Over that entire period, it is only the second purely British event that could have a global economic impact, the first being the Suez War in 1956.
We have seen a lawful rebellion against the urban political elite, which has stood for globalisation, low taxation, free markets, free trade and European political integration. The eventual global effects will depend on whether this remains a peculiarly British political upheaval – after all, the European issue has always had a special capacity to disrupt the political order within these shores – or whether it is the start of a European, even a global, political trend.
The drop of 3.5 per cent in the S&P 500 on Friday – an event that happens only three times a year on average – suggests that there are genuine global concerns about the consequences of Britain’s decision. If there is political contagion to other EU members, then the global economic effects could start to get serious, because the shock is coming when the world economy is fairly weak, and when monetary policy options to stimulate activity are apparently limited. But wise policy within the EU can stop that happening. Read more