LISTENING with growing dismay to the Brexiters opining on this week’s plunge in the pound has brought to mind the Flat Earthers.
For both groups, sheer weight of empirical evidence seems to matter not a jot. It is almost easier to understand the Flat Earthers than the Brexiters because the damage of leaving the European Union is more immediately apparent than the albeit-obvious shape of the planet. And saying that a no-deal Brexit will be a good thing, when all the evidence points to the contrary, will not make it so. It does not matter how many times or by how many people it is said, or how loudly.
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Sometimes causal relationships are staring people in the face, yet they refuse to see them. We have even had Brexiters blaming Remainers and the EU for sterling’s plunge this week when the actual reason has been plain for all to see. Well, at least for anyone who wants to see it.
New Prime Minister Boris Johnson and his Cabinet appointees, Michael Gove and Dominic Raab, have opened their mouths and spoken their minds. And the pound has fallen. Sharply. Michael Gove, in charge of no-deal preparations in the Cabinet Office, said over the weekend the Government “must operate on the assumption” the UK would leave the EU without a deal.
As the pound tumbled on Monday, Mr Johnson appeared to distance himself from Mr Gove’s comments. Mr Johnson said his assumption was the UK Government “can get a new deal”. But his comments did nothing for the embattled pound. And he then, in any case, proclaimed the UK would leave the EU “no matter what” on October 31. He has consistently underlined his utter determination to leave by Hallowe’en so it is no surprise foreign exchange markets have appeared to focus on this rather than his supposedly high hopes (which seem entirely out of kilter with practicalities) of a “new deal”.
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Newly installed Foreign Secretary Mr Raab has meanwhile declared the UK is “turbo-charging” its no-deal preparations and claimed the EU is being “stubborn” in terms of its Brexit negotiating stance.
So, it would not have taken some kind of specialist knowledge of foreign exchange markets for people to work out the inevitability of what type of impact such comments from the latest new top brass in the Conservative Government would have on sterling. A turbo-charged fall.
Yet Brexit Party MEP for London Ben Habib declared: “The pound is down because Remainers, including former PM Theresa May and the EU machinery, have convinced everyone – including the markets – that no-deal is a disaster. They have successfully hijacked that scenario. They are wrong.”
New Scottish Secretary Alister Jack offered a spectacular tuppence-worth, insisting Brexit would be good for Scotland with or without a deal. He said: “We can, and will, leave the EU on October 31. That will be good for the whole of the UK, including Scotland.”
Wow! And there was more.
He added: “We shouldn’t be afraid of a no-deal Brexit and I don’t accept the scaremongering around it.”
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Frankly, it does not matter what Mr Jack accepts or does not accept. The reality is, and will be, the reality.
If he cares to view the damage the Brexit vote has already done to the UK economy, he could look at the statistics showing growth has at best ground to a near-halt. It might already be worse than that, with the National Institute of Economic and Social Research putting the chances of the country already being in technical recession at one in four.
Or he could look at UK business investment. It fell for four straight quarters in 2018 – a year in which the danger of a no-deal Brexit was a lot more remote than it is now. Business investment has been hammered by worries over Brexit.
The EY Scottish ITEM Club has this week flagged the damage already being done by the Brexit vote to the Scottish economy. The think-tank predicts growth of Scotland’s non-oil gross domestic product will slow further to just one per cent this year, from a below-trend 1.3% in 2018. It cited “weaker consumer confidence levels and business sentiment, driven largely by Brexit uncertainty and slower levels of global growth". And it warned a no-deal Brexit was the “most obvious” downside risk to its forecasts. Bank of England Governor Mark Carney warned yesterday of an “instantaneous shock” from a no-deal exit.
Some of the Brexit brigade are claiming a weak pound is good anyway. Try telling that to the likes of manufacturing or construction companies seeing a leap in the cost of buying part-assembled inputs or raw materials from mainland European countries. UK holidaymakers on overseas trips have also seen the cost of going abroad rise even further with the latest outpourings from Mr Johnson and his ministers.
We should also bear in mind that the weak pound, which makes UK companies more competitive in overseas markets, has failed to provide a noticeable boost to exports.
Sterling has this week plummeted below $1.21 – its worst level against the greenback since early 2017. Excluding a so-called “flash crash” in autumn 2016, it is close to its lowest levels in more than three decades.
The pound is way, way adrift of the near-$1.50 levels at which it traded on June 23, 2016, ahead of the EU referendum result. The euro has this week hit its best levels against the pound since September 2017, climbing as high as 91.89p as Mr Johnson and his Government have stoked no-deal Brexit fears.
Sterling’s lowly levels reflect financial market players’ views of the UK’s economic prospects. These views are based on a raft of statistical, and anecdotal, evidence showing the damage already done to the UK by the Brexit vote, and a slew of forecasts from eminent economists about future effects. The future damage is viewed by the vast majority of economists as being greatest in a no-deal scenario so, if the danger of such an outcome rises, this will pile pressure on the pound.
In spite of the strange but prevalent mood in these dangerous days of populism that experts are too smart for their own good, we should bear in mind that it is those with specialist knowledge, not the soundbite-happy, ideologically entrenched politicians, who know best.
It is important to realise this before it is too late because what Mr Johnson and his Brexit band are trying to do will not only drag the UK economy even further into the mire but also hammer the living standards of those who can least afford it.
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