Johnson’s deal averts an immediate crisis but will corrode the economy over the longer termby Paul Wallace / October 18, 2019 / Leave a comment
Reaching a deal with the European Union is one thing; getting it through the Westminster parliament is another, as Theresa May found to her cost. Boris Johnson has defied the odds (and the pundits) by forging an agreement with the EU, through concessions over Northern Ireland that his predecessor was unwilling to contemplate. But the prime minister has yet to put his “great deal” to the House of Commons. When MPs meet on Saturday (the first such sitting since the Falklands War in 1982) they will have to consider above all what its overall impact on the economy will be.
Johnson’s deal has one big thing in its favour: it prevents the immediate danger of Britain crashing out of the EU. Despite recent efforts to intensify preparations for that eventuality, the economic impact would be dire. Quite apart from the shock to confidence and the loss of European goodwill, a no-deal Brexit would abruptly remove the legal underpinnings of almost half a century of economic and financial integration.
According to recent forecasts from economists at Citigroup, a no-deal Brexit would tip the economy next year into recession. By 2022, GDP would be over 3 per cent smaller than if there was a deal. These estimates are relatively benign compared with an updated worst-case scenario from the Bank of England envisaging a peak-to-trough decline in GDP of 5.5 per cent (which was actually an improvement on the 8 per cent fall it anticipated in November 2018).
Johnson’s deal may avoid the worst possible outcome, but it will still exact a heavy future cost. What matters in the long term is Britain’s new trading arrangement with the EU. That has yet to be negotiated, which is why the Tory battlecry of “let’s get Brexit done” is so misleading, the more so since reaching a new trade deal will be gruelling and protracted. Almost certainly it will require an extension beyond the planned transition—in effect, a standstill—lasting until the end of 2020.
But if Johnson stays in power—and his chances of doing so with a working majority after an early election will be enhanced by securing the deal—the direction that he will steer for Britain is clear. Unlike the close economic partnership envisaged by May, who wanted in particular to minimise barriers to trade in goods,…