The equity market has been doing its best to estimate how wrong, or right, economists forecasting a Brexit hit to our medium-term economic growth will be. The share price falls that we have seen among our major lenders and housebuilders suggest anticipation of economic stagnation, or even recession, characterised by falling house prices and weak business investment. Major rating agency downgrades reflect deep concerns over the future of our financial services sector. One banking analyst has argued that investors are also already pricing in a break-up of the EU.
One school of thought is that we were heading for a recession either way. Ukip leader Nigel Farage told The Sunday Telegraph shortly after the result that the UK was heading into a "mild recession anyway, completely regardless of Brexit". On this reading, bosses at Foxtons (FOXT) and beyond are getting a free excuse for cyclical or company-specific issues.
But were we? The Office for Budget Responsibility published its last fiscal outlook in March, and expected at that point that the UK's gross domestic product would expand by 2 per cent this year, and at an average of 2.1 per cent a year for the rest of the decade. It is true that this longer-term average had a downward revision of about 30 basis points due to the ongoing challenge of boosting UK productivity. But it is going some to say that a recession was imminent regardless of the vote.
Economic figures in the run-up to the referendum were tepid, but did not suggest a recession was on the cards. The CBI recorded retail sales growth for the year to June, albeit weak, beating expectations of a modest fall. Purchasing managers index data from May for the construction industry indicated expansion - but only just, with the lowest reading since mid-2013. Was the mere fact of the referendum a drag? The OECD concluded that uncertainty had undermined growth. Its latest outlook in June projected 1.6 per cent growth for 2016, rising to 2 per cent in 2017 in the event of a vote to remain.
Uncertainty has become a controversial word within market commentary: some see it as a very real drag on business investment, others as a ready excuse for unrelated challenges. But the pre-referendum uncertainty is nothing compared with that now surrounding the future trading relationship between the UK and the EU. While companies with dollar-denominated sales have benefited from the immediate currency movements, it is those same exporters that now have the largest degree of legislative risk baked into their shares.
It is not for this title to make political judgments about the planning of the Vote Leave campaigners. But private investors will have to stomach a high degree of political risk, perhaps higher than they have ever experienced. By the time of the Autumn Statement we should have a better idea of what the 'experts' are forecasting for our Brexit economy. But if you have had enough of them, or are confident that the supply/demand fundamentals in our housing market will be sustained, there are currently high-yielding bank stocks with big gaps to book value, and housebuilders that have not been so cheap for a long time. The question is whether the blood in the streets is coming from a mortal wound.
