Profound economic shock or profound opportunistic exaggeration

David Green, 27 February 2016

George Osborne claimed yesterday that leaving the EU would cause a ‘profound economic shock’. And yet the London stock market rose in the week after the referendum was announced.

‘In my judgement as chancellor leaving the EU would represent a profound economic shock for our country, for all of us and I’m going to do everything I can to prevent that happening.’

His evidence was: ‘You have seen the value of the pound fall and it reminds us all this is not some political parlour game – this is about people’s jobs and their livelihoods and their living standards.’

But if investors are as worried as Mr Osborne claims to be, would we not expect the stock market to have fallen?

A glance at the London Stock Exchange shows that the FTSE 100 went up. Arguably the FTSE 250 is more representative of British investor sentiment. It too went up, as did the FTSE All-Share index.

Between 19 February and 26 February the FTSE 100 moved from 5950 points to 6096; the FTSE 250 from 16,158 to 16,567; and the FTSE All-Share from 3263 to 3343.

In truth, the movements in the stock market and the foreign exchange markets reflected the uncertainty facing the whole world economy. Whether Britain stays or goes is only one of many factors.