Occasional good news cannot disguise overall poor performanceby Alex Dean / January 29, 2018 / Leave a comment
What is the economic impact of Brexit? In the run-up to 23rd June 2016, economists the world over lined up to warn of the harm that a Brexit vote would inflict. Yet a year and a half on from that remarkable day there has been no apocalypse. Last week we learned that growth in the fourth quarter of 2017 surpassed expectations. The news followed an impressive few months for UK manufacturing. Some Leavers have claimed they were right all along. Remainers, of course, do not share the optimism, and point out that we have not yet left.
The latest news provides us with a good moment to take stock. How has the UK economy really performed since the vote? What are the signs? Are the Brexiteers right to celebrate?
Not quite. The weight of evidence suggests that Britain’s economy is falling behind. If it is not yet again the “sick man of Europe,” it is starting to feel rather under the weather.
The thing to focus on is not individual statistics but the overall trend. While some extreme Remainer predictions were flawed, and some parts of the economy are performing well, that does not mean that Remainers’ central message was wrong.
Britain has not yet left the European Union, but as a consequence of rising inflation triggered by the fall in the pound, real earnings have fallen for the past eight months. The pound looked to have recovered somewhat of late, but today, with the dollar stabilising, it has come back under pressure.
The weaker pound also partially explains that manufacturing boom, and it is worth noting that manufacturing accounts for just ten per cent of the UK economy.
The much-predicted recession has not materialised. But growth has been deeply disappointing. What about that growth in the fourth quarter? It was better than expected, but that’s why it’s important to take a longer view: growth over 2017 as a whole was Britain’s lowest since 2012, at 1.8 per cent. The ONS described UK performance as “slower and more uneven.”
This is poor, and when you factor in accelerating global growth, the picture becomes bleaker. The International Monetary Fund said last week that this is the “broadest synchronised global growth upsurge since 2010.” But Britain isn’t benefitting: it has fallen from the top of the G7 growth table to the bottom and is forecast to lag even further in 2018. These aren’t just abstract numbers but real money: millions of Britons are worse off than they otherwise would be.
“Growth over 2017 as a whole was Britain’s lowest since 2012”
All this means that £350m more per week for the National Health Service will not be forthcoming. This is where the scale of the problem becomes clear: in the cost of that lost growth. On Radio 4’s Today Programme Bank of England Governor Mark Carney drove home the point: Brexit has already cost Britain “tens of billions of pounds,” he said. If we are still putting any trust in experts at all, these words should be of deep concern.
While more mixed than “project fear” predicted, then, the evidence points clearly in one direction. But the problem is that this may just be the prelude. The real economic pain could be yet to come.
Theresa May managed to strike a withdrawal agreement with the EU in December, but Britain will soon have to confront the question of its future relationship with the EU. Recent remarks from Chancellor Philip Hammond and the hard-line eurosceptic Jacob Rees-Mogg suggest neither Remainers nor Leavers will surrender without a good fight.
This threatens to prolong uncertainty, which is a nightmare for business. In a worst-case scenario continued infighting could become too much for firms to stomach. JP Morgan CEO Jamie Dimon is the latest industry leader to warn that his company could relocate thousands of jobs. Unless the government can agree quickly on the terms of a transitional deal with the EU, and then get straight on with negotiating a mutually beneficial trade deal, many thousands more could go.
The most catastrophic outcome of all would be a “no deal” Brexit, an outcome welcomed by some hardliners in the Conservative Party. This would see Britain crash out onto World Trade Organisation terms, resulting in immense economic disruption.
This is unlikely to happen. A sensible deal is in the interests of all involved. But whatever the exit route, these negotiations could just be an exercise in damage limitation. Even a workable phase two agreement will surely mean the loss of frictionless trade between Britain and the EU market, where it currently sends 43 per cent of its exports.
The full economic consequences of Brexit—the long-term, structural impact—will not be known for decades. But while the papers have reported the odd bit of good news, the signs so far are worrying. The numbers suggest that Britain is already paying a hefty price, one that will only get heftier.
Brexit Britain: the future of industry is a publication which examines the future of UK manufacturing through the prism of the recently released Industrial Strategy White Paper. The report features contributions from the likes of Greg Clark MP, Miriam Gonzalez, Richard Graham MP and Frances O’Grady.
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