One argument is “the higher trade barriers haven’t kicked in yet.” Another is “the decline in the value of sterling shows the British people already have taken big wealth losses.” Another approach focuses on consumption, Chris Giles at the FT has some good insights:
…rather than rising, household savings fell throughout 2016. The savings ratio dropped to an exceptionally low level in the third quarter as consumers went on a borrowing and spending binge not seen since before the financial crisis.
The interesting question is why households acted in this way. There are three plausible reasons. First, households correctly thought Brexit would improve their personal finances and borrowed and spent accordingly. Second, they were deceived into expecting economic gains from Brexit and still went out to spend. And, third, households watched sterling tumble, understood the likely effect on prices and brought forward their consumption, so they were spending in the knowledge their money would buy less in future.
Economic analysis allows us to set out these possibilities; it tells us only the last of the three options is sustainable; but it does not yet inform us which is correct.
By the end of 2017, we will know whether historically low levels of saving have persisted through the year, and this will provide a pretty good answer to the question of why spending held up so well after the EU referendum. If spending was merely brought forward, there will be a nasty jolt in the economy.
Here are some figures for consumer credit. Do stay tuned…