Morgan Stanley Economists Admit They Were Too Pessimistic On Brexit Impact

Morgan Stanley economists Melanie Baker and Jacob Nell, both of whom warned of a Brexit-prompted recession and a slowdown in the U.K. economy that would be long-lasting, are now eating their words after their assessment didn’t prove true.

According to a report by Business Insider, the Morgan Stanley economists admitted in a report that their initial assessment of the impact of Brexit was “too pessimistic.”

In a report covered by Business Insider, the two said: “To us, and many others, a vote to leave the EU opened up a new, uncertain chapter for the U.K. Leaving the EU could have profound (negative) consequences for the U.K. economy, and we thought firms and consumers would worry about that. So, we reasoned, firms would hold off making big investment decisions, and households would rein in spending. Instead, U.K. GDP growth has been healthy. At 0.7%Q in 2Q and 0.6%Q 3Q, either side of the referendum decision, GDP growth has been at trend.”

The economists pointed to five reasons why they think the slowdown in the U.K. economy never transpired, with the first reason being that they think consumers in the U.K. are “living for today” in that they are embracing a wait-and-see approach to the Brexit. Another reason: “More than half the electorate who voted, voted for Brexit.” The economists noted that many of the voters in favor of Brexit “felt something closer to elation than despondency at the result of the referendum.”

Other reasons included the Bank of England’s speedy and clear package of monetary policy stimulus, which was a big help, with the economists saying: “The August easing package had more impact on markets than expected and succeeded in looking coordinated, well thought out and not panicked in our view.”