The Brexit debate was bookended by two events this week: the latest GDP figures highlighting how the spectre of exiting without a deal is damaging the economy, plus another parliamentary defeat for Theresa May. With scant progress towards a smooth withdrawal from the EU, a chaotic no-deal exit — the default outcome if no action is taken over the next six weeks — is becoming ever more possible.
The Brexit debate was bookended by two events this week: the latest GDP figures highlighting how the spectre of exiting without a deal is damaging the economy, plus another parliamentary defeat for Theresa May. With scant progress towards a smooth withdrawal from the EU, a chaotic no-deal exit — the default outcome if no action is taken over the next six weeks — is becoming ever more possible.
Monday’s gross domestic product data showed four quarters of declining business investment and the lowest annual growth rate of the overall economy since 2009, ending the year particularly badly. Estimates by economists suggest that, even before it has happened, Brexit has cost the UK economy between 1.5 per cent and 2.5 per cent of GDP. The economy looks to be affected by the prolonged uncertainty. Although forecasts of an immediate shock after the 2016 referendum proved wide of the mark, the economy has underperformed its developed peers since.
Even if the UK is granted a long extension to the Article 50 talks, the negative effect is unlikely to go away. Businesses are factoring in not just the probability of a no-deal Brexit at the end of March — with the likelihood of disruption to supply chains and a sharp fall in consumer confidence — but the potential for prolonged uncertainty over Britain’s future. Investors can account for known risks. They are less good at dealing with the unknown unknowns of an uncertain outcome in an unprecedented situation.
The worst economic effects of Brexit were always likely to come in the long term, as the UK cutting itself off from trade with the EU reduced the potential for specialisation and productivity growth. But a sense that the governance of the UK is unpredictable to the point of eccentricity will also impact long-term decisions being made now. No company management will ever look at the country and its business environment quite the same way again.
That sense of disorder was manifested in the latest humiliating defeat for Mrs May in the House of Commons. This particular vote was essentially symbolic: an opportunity for the prime minister to demonstrate that parliament was behind her efforts to secure changes to the Irish border backstop. Unfortunately, more than 70 of her own Tory MPs abstained or voted against the benign motion.
Instead of showing a semblance of unity at home, a coalition of Conservative Remainers and Brexiters gave the prime minister a bloody nose. Notably a bloc of hardline Brexit-supporting MPs shunned any efforts to reach a compromise on the vote. This bodes badly for Mrs May’s efforts to prove to EU27 leaders that she can see a tweaked deal through the Commons.
Were the prime minister in any doubt, this week has confirmed she cannot rely on her party alone to pass a Brexit deal. It is increasingly clear that she intends to run down the clock well into March and present MPs with a stark choice of her deal or no deal. This might work. But the latest defeat must raise questions on whether she is dealing with rational actors. In fact, much of her party is beyond reason.
But even if one could be sure that Mrs May would prevail in the final weeks, the economic data should be telling MPs that the country cannot afford to wait that long for certainty. Tory moderates who have kept faith with Mrs May can no longer take the risk of giving her the benefit of the doubt.
The next key Brexit vote is in 10 days’ time. Moderate MPs from all sides must use it finally to block a no-deal outcome. An extension to the Article 50 process is necessary; MPs should vote to make it happen.
