This week we must put some nuance into that assessment because there is a marked contrast between the almost-universal view of economists that Brexit will be bad both for the short and long-term economic performance of the UK, Europe and possibly the world, and the relaxed response of markets to Brexit.
First, a few facts: in the 12 working days since the close of markets on Referendum Day, the FTSE 100 index has risen 5.2 per cent. Even the All-Share index, which has less overseas profit to offset potentially-depressed domestic earnings, is up 3.5 per cent. Meanwhile, demand for UK government debt has been a revelation. While the status of sterling-denominated debt has been downgraded by the credit ratings agencies, demand for gilts has surged, such that the redemption yield on 10-year UK government debt has fallen from 1.36 per cent on 23 June to 0.75 per cent. Only the currency has responded conventionally to fear and worry. Since the day of the poll sterling's value against the US dollar has dropped 12 per cent to $1.30.
So how can we explain the relaxed yet inconsistent response to Brexit? Four thoughts occur:
■ Don't think of the London equity market's response as enthusiastic, pessimistic or anything. Rather, consider that the market is behaving as if nothing has happened because, actually, that's the case - nothing has happened and won't at least until those exit negotiations begin.
■ Brexit is, almost by definition, a situation of prolonged uncertainty. Yet uncertainty means an unknown outcome, it does not necessarily mean a bad one, it could even be good. This is more than just semantics. To the extent that uncertainty equates to higher volatility in price movements then that tells us prices are likely to bounce higher as well as drop lower. As any first-year MBA student will tell you, volatility adds to the value of an option because it brings a better chance to make a profit even if that has to be accompanied by bigger chances of losses. So if equities are options on the success and failure of the post-Brexit UK economy - but no one knows which it will be - then their value can rise during this uncertain phase.
■ Brexit might not be bad at all for the UK's economy. True, this is a hard argument to sustain on a long-term view. When the two jewels of the UK's economy are set to be sullied, chipped and cut, then it's hard to see how the UK's trade - the economic argument is chiefly about trade - will benefit in the long run. Those jewels are the City's EU-wide supremacy in financial services and the UK's place as the destination of choice for inward investment into the EU.
In the short run, however, worries about the UK's economy focus on a Brexit-induced recession. However, that's really just a tautology - that something bad will happen because people expect something bad to happen. True, self-fulfilling prophesies do come about, but it's not exactly an intellectually rigorous analysis even if it's what the Bank of England seems to fear most, which leads us to the fourth, and most important, point.
■ Some markets are surging because they expect the Bank of England to ride to the rescue and the central bank has given every indication it will oblige.
In a way, this is an impossible ask. There is a limit to what a central bank can do to revive, let alone resuscitate, a fading economy when all it has at its disposal is monetary policy. But, as everyone knows, that's not really the point. Equity and bond markets have not perked up because they expect a slow down to be averted or turned around; in the short term, at least, that's incidental. They are chipper because - as usual - they see the central bank throwing money at the problem and that can only mean one thing - higher asset prices.
That the Bank of England is worried about the UK's economy is not in doubt. With characteristic understatement, it said in last week's Financial Stability Report that "the current outlook for UK financial stability is challenging". Predictably, the bank's anxieties are focused on the property market, both commercial and residential. It anticipated that some open-ended property funds would close for redemptions as investors 'ran' on them and it is spooked by May's plummet in housing-market activity, as reported by the chartered surveyors' trade body.
Its response is to free up banks to lend more by relieving them - for 12 months at least - of the need to hold any so-called 'counter-cyclical capital'. Next up - or what everyone assumes - will be more quantitative easing. This is where the central bank prints new money to buy in securities - starting with gilts then extending to corporate bonds - to produce a bit of feel good, loosen liquidity, dampen interest rates and persuade every one to go round one more time.
In a way, it's madness. You don't solve a debt crisis with more debt. But what else can the bank do? And it does explain the contrasting response to Brexit of the securities and currencies markets. Simultaneously, the UK has become a better and a riskier place for investment.
