The cost of Brexit
The flash crash of the British pound last week is not the end of the story. The currency has continued to weaken against other major currencies. It is now at its lowest level in more than three decades.
The parallel selling of bonds means interest rates have begun to inch up despite the best attempts of the Bank of England to keep borrowing costs down.
The moral of the story is that hasty political decisions have economic costs.
The current problems stem from the British electorate’s decision in a 23 June referendum to pull out of the European Union.
There’s a lot of confused talk about the relative merits of a hard Brexit versus a soft Brexit.
A few economists ask if the UK is now being treated like an emerging market economy. Others are harking back to 1976, when it had to go to the International Monetary Fund for emergency funds.
These seem extreme possibilities right now—but the mere fact that they are being discussed tells us a lot.