The silence of the political class, particularly the government, on post-Brexit roadmap or unwillingness to speak about the uncertainty means that it isn’t doing its job properly, or its advisors aren’t ready with their strategies. The government need not give a running commentary but it cannot remain silent about its exit plan when it’s so determined to fire the EU-exit gun shot early next year.
Since the Brexit vote in June, there has been little debate on how the process would kick in and its impact on Britain’s economy, living standards and access to single European market once Article 50 is triggered. Though as of now it is almost certain that Article 50 would be triggered in early 2017 and the government has set March 2017 deadline for Britain’s departure from the EU, the government has however, been secretive about the modalities and negotiations. No one really knows whether the government will be opting for a hard or soft Brexit.
In absence of clarity on the British government’s strategy and intent, experts and economists have been warning about the challenges and difficult times ahead for the economy which is growing at around 2 per cent. Prime Minister Theresa May’s determined resolve to start the process of Britain’s departure from EU without the Parliament’s express approval has temporarily been stalled by the Royal Court of Justice which ruled on November 3 that “the most fundamental rule of the UK constitution is that Parliament is sovereign”.
Thus the prime minister’s plan to wheel out the ancient royal prerogative to sidestep a vote of MPs before firing the departure gun-shot was struck down by a trio of senior judges. Though the government has clearly indicated that it will appeal against the verdict in the Supreme Court and the High court judgement would in no way derail its original plan to get on with triggering Article 50, it is for sure that for the moment the ‘Remainers’ who are jittery about leaving EU are rejoicing.
While it’s a temporary glitch in the eventual exit which is going to be an arduous and long-drawn out process of tough negotiations to seek concessions for Britain to enjoy access to single European market, currently Britain’s economy appears to be shaky, though it is fairly resilient and dynamic at the core. But it can become wobbly for years if it’s going to be a hard Brexit for the nation which is reeling under the pressure of high inflation, falling currency (pound) and low growth. The High Court’s verdict has however, opened the possibility of Brexit being held up for months by wrangling in Parliament where the government enjoys working majority of only 15 MPs and hence is vulnerable to delays and amendments.
The High court verdict is about constitutional propriety and a setback for the government and politicians who are in ‘Leave’ camp and in favour of exit from EU without debate in British Parliament. Even if Brexit is put to vote in Parliament, the question experts are asking is when the result of referendum is already decided, can MPs risk alienating majority of voters now by reversing it? In their view it’s quiet an unlikely scenario. While that’s only politics, the real worry for the nation and its people, including politicians, is Brexit’s real impact and the uncertainty that’s looming large for the economy which is difficult to comprehend at this stage. However, the signs are ominous for those who understand more of economics and care less for politics.
Last week, the Bank of England Governor Mark Carney, announced his decision to stay on in Threadneedle Street until 2019 to see Britain through its divorce from EU and to secure an “orderly transition to the UK’s new relationship with Europe”, instead of his original plan to exit the bank in 2018. The governor, who even the prime minister wanted to extend his tenure, has indicated that the impact of Brexit is not going to be painless if not unbearably painful.
After the Brexit vote, the pound has slumped by over 15 per cent in four months. Britain has already had one QE (quantitative easing) stimulus in August as also a 0.25 per cent rate cut to help tide over post-Brexit vote uncertainty. In his latest policy announcement last week, Carney left the interest rate unchanged at 0.25 per cent. But the Bank’s quarterly inflation report forecast showed the cost of living spiking well above its 2 per cent target at the end of next year at 2.8 per cent, mainly because of slump in currency. It has also forecast inflation of 2.5 per cent in 2019.
Though the August forecast of a stagnating economy was bit off the mark, thanks to services sector which contributed 80 per cent of the growth in the third quarter, the Bank of England has now raised marginally its growth forecast for this year and next year to 2.2 per cent and 1.5 per cent, respectively. However, 2018 forecast is not good news at 1.5 per cent amidst “persistent uncertainty” over negotiations with the European Union. The National Institute of Economic and Social Research has warned that inflation could reach 4 per cent by the end of next year which could impact consumer spending and corporate hiring.
Brexit is inevitable but the silence of the political class, particularly the government, on post-Brexit roadmap or unwillingness to speak about the uncertainty which is too complex to evaluate means that the government isn’t doing its job properly, or its advisors aren’t ready with their strategies. The government need not give a running commentary but it cannot remain silent about its exit plan when it’s so determined to fire the EU-exit gun shot early next year.
What worries experts and economists is the cascading effect of weaker pound contributing to higher import prices, rise in inflation, less than desired investment in infrastructure, curbs on movement of cheap labour from EU countries and weak consumer confidence. The fear of financial institutions like banks and investment entities like hedge funds shifting their base from London to any of the other major EU countries has already started causing fear of London losing its primacy of being the leading financial base in Europe.
The major concern for government as well those in charge of managing economy is that overall the economic impact of Brexit is more likely to be gradual drag on growth over the next few years, rather than a short, sharp shock. But then that was the predicted effect of the Brexit. At least the ‘Remainers’ had sensed it. The ones who voted ‘Leave’ did it out of strong anti-outsider sentiment and didn’t bother to think much about its after-effects.
