"The Prime Minister should be prepared to break with Conservative budgetary pieties"by Paul Wallace / August 18, 2016 / Leave a comment
Published in September 2016 issue of Prospect Magazine
Amid the chaos in the wake of the referendum vote to leave the European Union, Mark Rutte, the Dutch prime minister, said that Britain had “collapsed—politically, monetarily, constitutionally and economically.” His verdict looked rash following the swift coronation of Theresa May as Prime Minister, a seasoned and pragmatic politician who had supported the “Remain” cause. The pound, which at first had suffered a dizzying fall, steadied, and the stock market rallied as the political turmoil decreased.
As well as pledging that “Brexit means Brexit,” May explained that her mission was to make the economy work better for all. But that will be a hard task. Brexit may trigger the first recession since 2008-09. If it does, the downturn is likely to be short and shallow, unlike the severe recession that followed the financial crisis. Yet it would make for a miserable start to the new Prime Minister’s tenure, and the economy’s longer-term prospects will be overshadowed by deep uncertainties about Britain’s new relationship with Europe. The dismal leitmotif of May’s government will be one of damage limitation as she strives to negotiate a post-EU economic settlement.
In the elite-bashing that characterised the “Leave” campaign, economic experts were panned for their pessimistic views. The main reason for their gloom in the short-term was the financial and economic uncertainty that would result from a vote for Brexit. If anything, the experts were not pessimistic enough. Philip Hammond, who replaced George Osborne as Chancellor of…