Westminster is burning. Theresa May’s government has fallen to civil war over Brexit. Jeremy Corbyn’s Labour party, tarnished by charges of rising anti-Semitism, has its own divisions about Europe. But there is no cause for alarm. The economy is oblivious to political bickering and the ticking of the Brexit clock. Growth is tootling along, if not at a clip then certainly at a useful jog.
Westminster is burning. Theresa May’s government has fallen to civil war over Brexit. Jeremy Corbyn’s Labour party, tarnished by charges of rising anti-Semitism, has its own divisions about Europe. But there is no cause for alarm. The economy is oblivious to political bickering and the ticking of the Brexit clock. Growth is tootling along, if not at a clip then certainly at a useful jog.
A passing glance at the official statistics explains such complacency. The economy has been growing at a little under 1.5 per cent annually and provisional figures suggest the rate accelerated during the previous quarter. Unemployment is at its lowest since the 1970s. Public borrowing is less than the official forecast. Inflation is under control and, for all its occasional swings, sterling has been fairly stable.
For Conservative hardline Brexiters all this is enough to declare that Britain’s departure from the EU will leave the economy undisturbed. Never mind the need to preserve complex supply chains or recognise regulatory interdependence — a trade deal comparable to that of, say, Canada is all that is needed to keep things on track. Even a cliff-edge Brexit would cause only a temporary jolt. Remainers, the Leavers continue, were wrong in their dire predictions of the effects of a vote to leave.
Not quite. Britain may be growing, but the global environment has been especially benign, and UK output is expanding at a slower rate than most of its peers. Mark Carney, the Bank of England governor, says the BoE’s estimates point to a loss of up to 2 per cent of national income as a result of the Brexit vote in June 2016. In layperson’s terms that amounts to about £40bn or, in income terms, £900 per household. A “no-deal” Brexit, Mr Carney adds, would be potentially catastrophic. Welcome as it is, the jobless rate has to be set alongside chronically low productivity. French workers need work only four days to generate as much output as Britons working five. Sustained rises in national prosperity are possible only with higher productivity.
The borrowing figures also flatter the challenge. After 10 years of austerity Britain has reduced its budget deficit to 1.5 per cent of national income, but has been left with a public debt pile of nearly 90 per cent. Mounting political pressure for increased public spending — on health, social care, and the police to name only some — has already more than pre-empted any room for fiscal loosening. Assertions from the Brexit hardliners that big tax cuts would pay for themselves say more about their tenuous grasp of economics than about the real world.
Business leaders are reporting a sharp slowdown in capital investment as companies wait for the Brexit fog to clear. The fall-off is notable among Japanese and other foreign high-value manufacturers. The consequence will be lower future growth, as old plant and machinery goes unreplaced. As for sterling, anyone who has followed its fortunes through the decades will know that calm today says little about the chance of storms tomorrow.
The best description of the present state of the economy is “fragile”. Even an agreed and smoothly implemented Brexit that preserves highly preferable trading arrangements with the EU27 will give a downward jolt to the path of growth. The government’s Chequers plan would shut the door to frictionless trade in services.
The message could scarcely be clearer. This is a time for caution. Leaving the EU will carry a significant cost. The smoother the transition, the less it should be. The government must listen to business. Britain cannot afford the “let’s look on the bright side” recklessness of the ideologues seeking an abrupt rupture with the EU.
