When Britain’s voters decided last month to exit the European Union, they created huge legal and economic uncertainties. Those unknowns have pushed up investors’ fears — and driven down demand for goods and services.
Less demand equals lower prices.
Need gasoline? Pump prices have been falling every day. Need a loan? Money has been getting cheaper as interest rates have plunged to record lows. Want to visit London? Go! The British pound has fallen to the lowest level in more than three decades.
The post-Brexit bargains can help U.S. shoppers, borrowers and vacationers. But what if prices just keep falling? Maybe this summer sale isn’t a temporary boon, but rather a sign that the global economy is unraveling and pushing the United States into recession.
That gloomy guess got a boost this week when Deutsche Bank analysts said they now see a 60 percent chance of a recession hitting the United States within 12 months. “The odds of the next economic downturn are rising,” the report said.
But other economists say that assessment is far too negative. For example, S&P Global, a financial information company, said that while Brexit does indeed raise the odds of a recession, the difference isn’t that great. S&P Global sees the maximum chance of a recession as nudging up from 20 percent in March to 25 percent now.
And S&P Global sees silver linings: Interest rates are at “record lows again and the stronger dollar helps keep a lid on inflation.”
Brexit bargains may be coming at the very time when more Americans can afford to take advantage of them. Consider these factors:
- Americans have bigger paychecks to spend. Workers saw a 2.9 percent average rise in real wages in 2015, compared with 2014, University of Michigan economist Don Grimes said Wednesday in an analysis using data from the Bureau of Labor Statistics.
- Homeowners can cut monthly costs. The plunge in lending rates means more people can refinance their homes to save money. On Wednesday, the Mortgage Bankers Association said applications to refinance loans jumped 21 percent last week. Refinancing can reduce mortgage costs by hundreds of dollars each month.
- More jobs are boosting confidence. With the unemployment rate down to its pre-recession level of 4.7 percent, many workers are feeling more confident about spending. The Conference Board’s consumer confidence index rose to 98 in June, up from 92.4 in May.
So maybe this will all work out well — at least in this country, according to an assessment released Wednesday by IHS Global Insight, a forecasting firm.
Brexit may weaken demand from across the Atlantic Ocean, but then again, “U.S. exports of goods and services to the United Kingdom and European Union represent less than 1 percent and 3 percent of GDP, respectively. Therefore, the damage to U.S. real GDP will only be a few tenths of a percent,” the report concluded.
At the same time, “there will be positive offsets from lower commodity prices and lower interest rates,” it said. “The good news is that the U.S. economy remains on solid footing. … The key source of growth will be consumer spending.”