Friday 10 April 2020

Coronavirus damage to the UK economy "beyond imagination": Brexit still going ahead?

The Brexit negotiations are still limping along in the background and barely noticed by the media or most people. Occasionally something interesting pops up and yesterday a couple of tweets appeared that throw a bit of light on what's happening behind the pandemic. The first came from Harry Cole, deputy political editor at the Mail on Sunday, a man with connections one imagines. He suggests Brexiteers are relaxed about extending the transition period:
The words "short extension" leap out at you.  He asks rhetorically do Brexiteers really "want the end of the Great Project to be forever tainted? Images of goods piled up at ports, which if they get this wrong while distracted is a real threat, or PPE imports blamed on chaos. Of course they don't..."

If they genuinely believed Brexit was a remotely good idea with benefits for our economy there would be no question about pressing ahead with all speed. Cole's words are surely evidence that even the most enthusiastic Brexiteers recognise the damage Brexit will do to the British economy, which is already poised to suffer an unimaginable shock. More on this below.  The idea a "short extension" will be OK is really only lifting the delusion fractionally. It will be a long one.

The second tweet came from David Frost our chief negotiator and the man who will go down in history as the architect of a multi-trillion pound disaster which will take decades to be put right.  

The word which springs out of his tweet is "reassure" as you can see below:
The "difficult times" he refers to is the global pandemic currently rampaging through global trade and trashing economies left, right and centre. Nobody but an imbecile would be "reassured" that we are headed towards a cliff while trying to bring coronavirus under control. It's as if Churchill would have been "reassured" that the war was continuing while he was focusing on an outbreak of Bubonic plague in 1941.

You would think from Frost's tweet that all is well in the Brexit negotiations - or fairyland as we know it.

He goes on to say the UK side will share more legal texts with the Commission (and nobody else) shortly. Again this tells us the EU side are getting their way in forcing Britain to table text on other sectors probably including security and fishing. We get more details and confirmation of this in a longish thread by Nick Gutteridge, a Brussels based reporter which is well worth reading in full:
He explains the legal texts the EU expect us to table include energy, criminal justice cooperation, and (possibly) fisheries. Member States continue to stress that the UK's insistence the Commission doesn't share the texts with them is harming the negotiations.

It's an informative thread. We are apparently seriously trying to act as if nothing's happening apart from Brexit. What comes across is that the EU are not about to ask or press for an extension. This has not even been discussed and they claim they have always regarded this as the only certainty. It's clear now that any request must come from our side. They are going to force the UK to ask.

The 'sequencing' problem of the withdrawal agreement, which the EU won, has been replaced by a disagreement about 'parallelism' with the EU trying to ensure ALL the work streams they want included proceed at the same pace and finish up with an all-encompassing agreement ready to sign at the end.

The two sides continue to circle each other like adversaries, not partners. There is no trust, no confidence and no faith. We have exhausted it all with our obduracy, wishful thinking and sheer bull-headedness.

The Guardian ran a story quoting the words of an unnanmed EU officials - our plan to agree a trade deal by the end of December is a "fantasy". But that is in keeping with Brexit from the start so no change there.

The economy
We are really into totally uncharted waters with the government bailing companies out across the board in a massive spending splurge. 

In the next few weeks and months financial numbers are going to appear in the press which will literally be "beyond imagination" in the words of Faisal Islam the BBC's economics correspondent. Easily the worst since the great depression. The BBC had asked a series of forecasters how much they thought the British economy would shrink in the next quarter (Q2) of 2020 and figures ranged from -7.5% to -24%. These are off the scale, not so much a pothole as a grand canyon on our journey back to normality.

A tweet from a former adviser to two previous chancellors, Tim Pitt, shows an extract from an FT piece yesterday with a bar chart indicating the predicted GDP falls in the G20 countries (plus Spain) and every one shows a huge drop in national output.
The BBC also interviewed a former BoE forecaster who's name I didn't catch, and he also confirmed a double-digit drop in output for Q2 was now probable judging from early indicators about consumer spending on credit cards and so on. It is an utter disaster which could easily extend right through this summer.

The idea that you could some how stagger to your feet and at the same time exit the EU, with or without a trade deal, at the end of the year is also beyond imagination.

As Bloomberg note from official figures, the UK economy unexpectedly shrank in February even before the coronavirus took hold. And the BBC report that Northern Ireland's economy is still 4% smaller than it was before the last crash in 2008-09. In other words it hasn't recovered from the earlier one before going into another recession.

The Institute for Government (IfG) have produced a paper about the government's response to the pandemic, praising Sunak for ripping up the rule book but they go on to say:

"Later in the year, if all goes well, the government’s mind will turn towards how it restarts demand in a private sector that has had its confidence shattered and – in parts – its financial resources depleted. It will be deeply concerned with the damage the crisis will have wreaked on the supply side of the economy – the labour withdrawn from the market, the investment that has been curtailed, the broken supply chains and the lost organisational capital of failed companies.

"There will be growing interest in the question of how our economy and society need to be reformed in the wake of this trauma: more spending on health, certainly, but also the possibility of a real change in how we work, travel and interact. Finally, there is going to be the most enormous fiscal reckoning. Now is too soon to estimate the rise in debt and annual borrowing that future chancellors will need to address, but it may well require more pressing answers then those demanded by the financial crisis a decade earlier."

Remember those words, "the most enormous fiscal reckoning" when you think about the decision that must be made in the next couple of months about requesting an extension. Only a madman would contemplate Brexit in December. It ain't going to happen.
Posted by at