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Brexit: Mind The Gap

So much for a week being a long time in politics. Just the last few hours have left our collective heads spinning.

But while David Cameron has asked the nation to wait until the autumn before it embarks on the voyage of reshaping the horizon under a new captain, the economy will be far less patient.

As the opportunities for al fresco dining drift away and PM Cameron begins his final round of arrivedercis we will have solid signs about the extent to which today’s result has affected the economy. It is not too far a stretch to conclude that the resulting jumps in financial and political uncertainty could push down sharply on activity.

So what can be done? The Bank of England could cut the policy rate and expand its own Quantitative Easing program by dinner time. But such steps would already be too late to stave off a slowdown. Meanwhile, those claiming that the plunge in sterling is a long-overdue remedy which will also boost our manufacturing industry need to look closely at what we actually sell to the world.

Government spending? Even under a change of management at 11 Downing Street the chances of a retreat from the bitter austerity programme planned for the next four years look remote.

That leaves households whose outlays account for around 70% of UK GDP. There are some tentative signs that the latest bout of intense sashaying up and down the high street and along the online aisles may be petering out. In particular, feeding the habit has seen a dramatic fall in household savings as a share of take-home income to the lowest level since records began in the 1960s. This drop in rainy-day money partly reflects ultra-low interest rates, low unemployment, weak pay rises, and solid house prices. But it makes consumers highly vulnerable to exactly the set of Brexit risks which the proponents of “Project Fear” had been accused of irresponsibly overdramatising. We will see.

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