SO here we are – nearly two-and-a-half years on from the Brexit vote – and those big new trade deals promised by those campaigning to take us out of the European Union look to be further away than ever.
Uncertainty and alarm over what will happen next is as great as ever.
One thing that is becoming ever-clearer by the day, although patently not to many Brexiters, is the grave economic and societal damage to the UK if it leaves the EU, under any exit scenario. The economic damage is spelled out in the UK Government’s own forecasts this week.
The whole situation seems entirely absurd. The UK Government is acknowledging the major damage that Brexit will do to the economy, and consequently living standards, but at the same time continuing to insist on taking us down this route.
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It forecasts UK gross domestic product in 15 years’ time would, under a no-deal scenario, be up to 10.7 per cent lower than it would if the country were to stay in the EU.
That seems stark enough but the Brexiters are not seeing this picture of post-Brexit reality.
Remember David Davis? He was the Secretary of State for Exiting the European Union. Not the one before the one we have now but the one before that. He dismissed his Government’s forecasts of the impact of Brexit as a “propaganda onslaught”, ahead of the vote in Parliament on December 11 on the draft withdrawal agreement between the UK and EU being championed by Prime Minister Theresa May.
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But it is difficult to see how Mr Davis can, with a straight face, dismiss the Government forecasts (which are less frightening than the entirely justified warnings this week from the Bank of England about a no-deal scenario) out of hand.
After all, he was one of those trumpeting a brave new world with lots of post-Brexit opportunities for the UK. These supposed opportunities are conspicuous only by their absence – there is absolutely no sign of them all the way out to the horizon – and Mr Davis and other Tory Brexiters have had a long time since the June 2016 vote to deliver their Brexit fantasy. The imagined upsides have failed to materialise. The downsides of damage to trade and the cost to our economy from an end to free movement of people between the UK and continuing EU member states are real rather than fantastical. So, Mr Davis, there will obviously be a big hit to UK GDP.
The Government’s forecasts have it that, even if there is no change to migration arrangements, UK GDP in 15 years’ time under a no-deal scenario would be a (still-frightening) 7.7% lower than it would be if we were to stay in the EU. The range of the predicted loss in such an event is 6.3% to 9%. This scenario of no change to migration arrangements seems most unlikely, given the Conservatives’ puzzling determination to reduce the flow of those workers from other EU countries who are so important to maximising growth and supporting an ageing population in the UK.
On the basis that there is zero net inflows of workers to the UK from European Economic Area countries, the Government forecasts have it that GDP in 15 years’ time will be around 9.3% lower than if the country were to remain in the EU, with the predicted loss under this scenario ranging from 8% to 10.7%.
The deal negotiated by Mrs May is projected to result in UK GDP in 15 years’ time being between 1.9% and 3.1% lower than if the UK were to stay in the EU, under the zero net inflows of EEA workers scenario. This is still major damage.
A Norway-style arrangement whereby the UK remained part of the EEA post-Brexit is projected to result in a loss of 1.4% of GDP, relative to continuing EU membership, on the 15-year time horizon. Free movement of people would continue under this relatively benign Brexit scenario, with the loss of GDP resulting from the effects of leaving the EU on trade.
President Donald Trump seemed to indicate this week that he did not care much for Mrs May’s withdrawal agreement, signalling it could hamper negotiation of a UK-US trade deal.
The US has been trumpeted by the Brexiters as likely to be very keen to do a trade deal with Blighty. Maybe this enthusiasm was fuelled by President Trump’s loud support for Brexit. Wherever it came from, this enthusiasm has been misplaced. Apart from anything else, there has been a total misunderstanding on the part of Brexiters about the length of time it takes to negotiate a trade deal and the complexities involved.
These time and complexity considerations apply even if the other country is bending over backwards to secure a deal – an unlikely scenario in days of growing protectionism.
The National Institute of Economic and Social Research think-tank this week forecast UK GDP in the longer term would be around 4% lower than if the country stayed in the EU if the Government’s proposed Brexit deal were implemented.
It points out this is about the same as losing the annual GDP of Wales. The NIESR added that the projected impact equates to a loss of 3% of GDP per head, worth around £1,000 per person annually to people in the UK. That is a lot of money, especially for a UK population blighted by nearly a decade of Tory austerity.
The cost of a no-deal exit in March, as the UK Government’s own forecasts show, would be much, much greater still. The Bank of England this week warned of a potential 8% plunge in UK GDP – worse than that triggered by the global financial crisis – in the event of a disorderly Brexit. The Bank flags the danger of a 30% drop in house prices, a 25% plunge in sterling, and a surge in unemployment, currently 4.1%, to 7.5% in such a scenario.
Sterling remains depressed by the Brexit fiasco. But its movements signal currency market players do not wish to give up hope on this front.
The possibility of MPs voting down Mrs May’s deal has generally been weighing on the pound but it appears currency traders are not dismissing the notion that such an outcome might ultimately be good, by leading to Brexit being abandoned.
It seemed notable that sterling was buoyed on Wednesday by comments from shadow chancellor John McDonnell suggesting it might be “inevitable” that a second referendum on EU membership would be called if Labour were not able to force a General Election in such a situation.
The UK surely still has room to avoid all of the negative scenarios outlined by the Government this week, simply by staying in the EU. Could common sense yet prevail?
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