Ian McConnell: No-deal Brexit would be awful but this particular Tory’s warning sticks in craw

The uncertainty businesses and households have faced since the June 2016 Brexit vote, coming up for three years ago now, is rooted entirely in Mr Cameron’s decision.

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Things are in a dysfunctional state indeed. And, to top it all, we have had US President Donald Trump wading in yesterday with the promise of a big UK-US trade deal. As well as being interestingly timed, his contribution was notably short on detail.

A rare morsel of light relief this week in the continuing Brexit horror show was the surreal and surely over-the-top celebration by Secretary of State for International Trade Liam Fox of trade continuity deals with Papua New Guinea and Fiji.

Chancellor Philip Hammond’s spring statement on Wednesday was reduced to an absolute sideshow amid the Brexit chaos.

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The updated economic forecasts from the Office for Budget Responsibility accompanying the spring statement might, in normal times, have made headlines about what the future holds for the UK.

However, given what happens to the UK economy and its public finances depends hugely on how the Brexit shambles plays out, it was not surprising the forecasts attracted relatively little interest.

In any case, the Organisation for Economic Cooperation and Development had flagged the UK’s miserable outlook, even in the event of the avoidance of a catastrophic no-deal Brexit, last week. It reduced its forecast of UK growth this year from 1.4% to just 0.8%. The UK grew by only 1.4% last year – its weakest expansion since 2012. For 2020, the OECD predicts growth of just 0.9%.

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The OBR is more optimistic than the OECD but nevertheless had to cut its 2019 growth forecast from 1.6% to 1.2%. UK public sector net debt, which has ballooned under the Tories, is forecast to rise from £1,803 billion at the end of this month to £1,878bn in five years’ time.

Mr Hammond claimed the UK economy was “robust”. What? This is an economy in which growth has almost ground to a halt, according to official data and surveys, even before we get to Brexit itself, with the prospect of leaving the EU having hampered the UK for years.

The OBR said its forecast had been “produced against the backdrop of considerable uncertainty over the next steps in the Brexit process”. No kidding. The OBR also noted it had “no meaningful basis for changing the broad-brush assumptions that have underpinned our forecasts since the referendum”, that “the UK makes an orderly departure from the EU on March 29 into a transition period that lasts to the end of 2020”.

Given what Bank of England Governor Mark Carney calls the “fog of Brexit” is all-encompassing, the “no meaningful basis” observation was fair enough. After all, what would the OBR have changed its assumptions to, given the UK Government itself cannot tell us what is going to happen next (and that this has been the case for some time)?

The OECD last week flagged the likelihood of UK recession in the event of a no-deal Brexit.

It has been interesting to observe the pound this week. Sterling rose on Monday afternoon on the news that Prime Minister Theresa May was going to Strasbourg to meet with European Commission President Jean-Claude Juncker and Michel Barnier, the EU’s chief Brexit negotiator. The pound remained firmer into Tuesday morning, supported by overnight news of a “legally binding” add-on to Mrs May’s draft withdrawal agreement with the EU aimed at resolving concerns among arch-Brexiter Tories and the Democratic Unionist Party about the thorny Irish backstop issue.

Sterling fell as Tuesday progressed when Attorney General Geoffrey Cox gave his opinion that the addition did not change the legal risk of the UK being trapped indefinitely in a backstop arrangement.

As appeared inevitable following Mr Cox’s opinion, Mrs May suffered a heavy defeat on Tuesday night in her latest attempt to have her deal with the EU approved by Parliament.

After the vote, however, the pound rose again, buoyed by hopes that EU exit might have to be delayed, possibly for a significant period, or could perhaps be avoided altogether.

On Wednesday morning, Guy Foster, head of research at stockbroker Brewin Dolphin, summed up well what was driving the pound’s movements.

He said: “We can expect the EU to kill Brexit with kindness – the longer they offer in terms of an extension, the less chance they believe there is of Brexit actually taking place. Rightly or wrongly, the collective wisdom of markets is that Parliament is saving the UK electorate from an act of self-harm; hence the pound is rising this morning, despite the fog of Brexit never appearing thicker.”

With Brexit, thick fog is better than self-harm for the UK. When there seems to be a growing chance of softer Brexit, or staying in the EU, sterling gains on hopes UK prospects will be less-bleak than feared. MPs’ vote on Wednesday night against a no-deal Brexit, under any circumstances, buoyed the pound.

You would hope Mrs May and her Government would see more clearly with every vote in Parliament that the sensible moves are those that put in place means for the UK to escape from the gloom that has enveloped it by ultimately abandoning the disorientating Brexit shambles.

Tim Allan, president of Scottish Chambers of Commerce, posted a picture of Norwegian artist Edvard Munch’s The Scream on LinkedIn by way of reaction, after Mrs May’s deal was voted down heavily in Parliament on Tuesday. It is easy to understand the frustration of the business community. However, The Scream would surely have been an entirely apposite posting had Mrs May’s deal been voted through, and Brexit had become a certainty.

For now, we can retain the hope that Brexit, and its hit to the UK economy and living standards, might yet be avoided altogether.