Mark Carney despite all the support he has at his disposal in the Bank of England seems to have only a tenuous understanding of the performance of the UK’s economy. When presenting the Bank’s latest inflation forecast in August the Governor said that business investment has slowed because of the uncertainty being generated by the Brexit process and that this uncertainty was also adversely affecting wage growth. He then went on to repeat – despite and the government’s disarray on Brexit and the Bank being persistently proved wrong - his mantra that both business investment and wage growth are expected to pick up from their very subdued levels.
Almost two months later Mr Carney appeared on the BBC’s flagship Today programme to hint that interest rates were likely to rise in November if ‘the economy continues on track’. But, within hours the ONS was reporting that the UK economy had been growing at a slower pace than it had previously though. Retail sales growth had falling to its slowest rate for four years, the index of production was estimated to have decreased and business confidence was now at its lowest level for almost six years. The ONS data showed year-on-year GDP growth had slowed from 1.8 to 1.5 per cent in the second quarter. What the ONS revealed is that in the three months to the end of June the UK recorded its weakest annual growth rate since 2013.
If the economy ‘continues on track’ things are set to get worse. Despite the 15 per cent fall in the pound’s value since David Cameron announced his ill-fated EU referendum in February 2016 the country’s trade deficit has climbed to £4.6bn, its highest level since September 2016. Meanwhile, consumer debt is steadily increasing at a near double-digit annual rate of 9.8 per cent. Productivity and wages continue to stagnate, inflation is rising towards 3 per cent and real consumer incomes are declining. By any yardstick the economic outlook is poor and in part this is due to Brexit and the government’s chaotic Article 50 negotiations.
What value now the confident claims of the leaders of the Leave campaign that Britain as the fifth-largest economy in the world could have its cake and eat it? Surely even the zealots must be coming to realise that the nation is facing a painful trade-off between economic prosperity and Brexit. The Prime Minister seems to have been persuaded. Hence, her Florence speech effectively proposed that the UK should be allowed to remain a non-voting member of the EU until 2021. Is this what was meant by taking back control? Theresa May’s government is not in control; it is being force to give ground in the Article 50 negotiations having recognised that the ‘no-deal is better than a bad deal’ assertion is pure fantasy. All that is on offer for the UK is a bad deal and I suspect she knows it.
Offering to pay for the benefit of being able to stay within the single market and customs union should be seen for what it is. Admittance that the referendum vote was a monumental mistake that is now, as the ‘experts’ predicted depressing further the UK economy’s relatively poor performance, the effects of which will last long into the future. I can only rationalise the referendum’s self-inflicted wound by believing that many of the circa 17 million votes to leave were delivered by people whose mindset is still stuck in the past when immigration was lower and Margaret Thatcher was building her British ‘utopia.’ Apart from unapologetic racists, I fear that many leave voters bought the zealots’ distorted and deceitful argument that membership of the EU was holding the country back. As readers of this bog will know I am only too well aware of the UK economy’s flaws – eg, inadequate public and private investment, low productivity and a lack of competitiveness – but these failings cannot be laid at Brussels’ door. They are self-inflicted; in large part the product of the very Thatcherite philosophy espoused by the zealots.
Certainly the weakness of the UK economy when compared to that of the EU has not helped the UK’s position in its Article 50 negotiations. A situation not helped by our negotiators’ second rate performance. According to Politico Europe, the UK’s team’s lack of preparedness and general disorganisation has caused some on the other side to suspect it must be a ‘cunning plan’. If only. Michel Barnier, the EU’s Brexit negotiator has expressed ‘concern’ over Britain’s slow and ‘ambiguous’ approach to the negotiations suggesting it cause is the UK’s lack of clarity as to what it wants. But how can Britain be clear when its fantasies regarding Brexit confront reality? Sensing the opportunity inherent in the confusion that he largely engineered, Boris is disingenuously doing his best to distance himself from the impending Brexit ‘car crash.’
I pointed out in my previous blog that informed analysts have concluded that even if the UK can negotiate free trade agreements around the world they will only offset a fraction of the trade we lose by leaving the EU. For those who believed, naively, that we could rapidly conclude favourable trade deals with countries such as the US, China and India our embarrassingly hapless start to the Article 50 negotiations should raise a concern. And if that is not sufficient the US government’s proposal to slap punitive tariffs on Bombardier with operations in Northern Ireland should cause those who think the US will treat us gently in any negotiations to think again. Mrs May pleas to ‘her friend’ Donald Trump to intervene on the UK’s behalf have gone unheeded and should serve as a harbinger of our relative weakness in trade negotiations with large countries outside the EU. I didn’t know whether to laugh or cry when I heard Gisela Stuart - one of the leaders of the Leave campaign – complaining that the EU had not thrown its weight behind us in the matter.
28th September 2017