The Chancellor has certainly been relentless in his quest in cobbling together terrifyingly negative data associated with a BREXIT vote, courtesy of the good offices of HM Treasury.  This dossier, which suggests that the Pound will fall 12% in value, appears to have been put together in a rather haphazard and hurried manner. I have an enormous amount of time for Chancellor Osborne.  He’s done a great job.  This report should not have his hallmark on it!


The quality of the analysis superficially looks very basic stuff, which even my inadequate brain is happy to challenge. The paper implies that clothing and food would cost £221 more per year for a family of four as a result of a 12% depreciation in Sterling – they arrive at that Sterling number by averaging those helpful analyses from our larger banking colleagues who just incidentally help fund the ‘Remain’ campaign. Sterling may well weaken, but this dossier is not the most robust piece ever written and may flounder under close scrutiny for the following reasons.  


On an independent basis there are question marks over the value of Sterling – you would worry about the robustness of the paper for the following reasons –


  1. No estimate is made for the elasticity of demand to higher prices i.e. substituting your more expensive Indian mangoes for the unchanged cost of British rhubarb.
  2. Absorption of higher input costs by retailers into their profit margins or by any currency hedging activities.
  3. Second order bargaining pressure from buyers on non-sterling producers to reduce product costs.



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