LONDON – Fear of an economic meltdown was the biggest weapon in the campaign to stop Britain from leaving the European Union.
Economic and financial experts in the City of London, which has a lot to lose from an EU exit, warned that a decision to leave would hit business so hard as to put the country in or close to recession this year.
Ten weeks after the vote, though, some say the fearmongering was overdone. Though the pound has fallen to a 30-year low, as predicted, people continue to spend and activity in manufacturing and services rebounded last month from a sharp contraction in July. House prices have held up.
The question is whether this is simply the calm before the storm — before Britain goes through with the decision to leave the EU and negotiates its new relationship — or is the country such a good place to do business that it can weather the dislocation of Brexit.
"The City called it wrong," Nigel Wilson, chief executive of Legal & General, an insurer and pension provider that has 746 billion pounds ($1 trillion) under management, told the BBC this week. "Everyone was naturally a 'Remainer' and therefore when it didn't happen, psychology took over and we got some very odd outcomes which are busily self-correcting over a period of time."
But Swati Dhingra, one of those who forecast severe damage to the economy, says the danger hasn't past. Warnings about the impact of Brexit were focused on what might happen when Britain leaves the EU, and that won't happen for more than two years — at least. Until then, no one knows what the country's relationship with the EU will look like and what effect it will have on trade, labor supply and investment, she said.
"It's too early to tell," said Dhingra, an expert on trade and international economics at the London School of Economics. "The trade policy changes have not yet happened. . Why are we expecting things to change?"
Among the most crucial questions to be decided is whether Britain will continue to have access to the EU's single, tariff-less market of more than 500 million people and under what conditions. The financial services industry is particularly concerned about maintaining the current system of "passporting," which allows professionals who are registered in one member state to work anywhere in the bloc.
The details of Britain's new relationship with the EU will be determined by negotiations that will last at least two years and won't begin until the government formally notifies European authorities that it intends to leave. Prime Minister Theresa May has signaled that she won't do this before 2017.
John Nelson, chairman of the insurance market known as Lloyd's, suggested during a speech this week that big businesses are waiting to see what sort of deal the government will strike.
"If we are not able to access the single market, either through passporting rights or other means, the inevitable consequences for Lloyd's — and indeed other insurance organizations — will be that we will transact the business onshore in the EU. And that obviously will have an impact on London," Nelson said at the Lloyd's City Dinner.
One explanation for stabilization in economic indicators is that the Conservative Party chose a new prime minister two months earlier than was expected when David Cameron stepped down following the referendum. Since taking office, May has dismissed calls for early parliamentary elections and, critically, insisted that she won't immediately trigger Article 50, the clause in the EU treaty that sets a departure in motion.
That eliminated some of the political uncertainty that fueled uncertainty after the vote — and bought the country time.
The Bank of England also swung into action, launching a range of stimulus measures to bolster confidence in the economy.
The multipronged approach greased the gears of the economy by making borrowing easier and cheaper. The bank cut its key interest rate to 0.25 percent from a previous record low of 0.5 percent and agreed to pump an additional 60 billion pounds ($78 billion) of new money into the economy through the purchase of government bonds.
The central bank also said it would buy up to 10 billion pounds of corporate bonds to make it easier for companies to borrow, and provide cheap loans for banks to make sure they could lend to people and businesses at low rates.
The measures were bolder than investors expected, pushing stocks up and the pound down. Experts say they will help shore up trust at a time of uncertainty by showing that authorities are taking action. But that hasn't stopped lawmakers from demanding answers.
One lawmaker, Jacob Rees-Mogg, an asset manager who campaigned to leave the EU, frostily challenged Bank of England Governor Mark Carney at a parliamentary hearing Wednesday over the bank's often severe predictions about the impact of a vote to leave the EU.
Carney countered that the bank's actions helped calm nerves and said he was "serene" about the measures.
"This financial system, under the oversight of the Bank of England, sailed through what was a surprise to the vast majority of financial market participants," Carney said.
In the weeks after the June 23 referendum, surveys showed that business and consumer activity dropped at the fastest pace since the depths of the financial crisis in 2008. The purchasing manager's index posted a record drop in July, falling to 47.4, with anything below 50 indicating a contraction in activity. But the index rebounded to 53.2 in August, injecting some optimism into the debate on how Britain is faring after the seismic vote.
The FTSE 100 index of Britain's biggest publicly traded companies closed at 6826.05 on Tuesday, 7.7 percent higher than on June 23. The index was helped, however, by the plunge in the pound, as many of its listed companies are energy and mining companies that make money in dollars, or exporters that benefit from the drop in the British currency.
The pound was at $1.3338 on Wednesday, up slightly from the 31-year low below $1.2900 experienced after the vote but still far below the $1.4484 it traded at a month before the vote.
Economists are now waiting for more data that show what the economy is doing — and where it is going — over the long term.
"We are really relying on crumbs," said Alpesh Paleja, principal economist at the Confederation of British Industry about the dearth of data. "I think it's very difficult to tell how much of a storm it is going to be because so much depends on a competent hand on the part of the government in handling Brexit."