After the Conservative party conference, there is little doubt the pendulum has swung towards a hard Brexit. Markets took a hit, and Sterling hit a 31-year low against the dollar.
Here are six economic developments from this week:
1. Sterling nose-dived to a 31-year low against the dollar as fears of a hard Brexit caused a sell off on Asian markets on Friday. The British currency fell around 6% against the dollar in a matter of seconds before stabilising at 1.5% down on the day. The Bank of England is investigating whether it was an automated trading system reaction to a negative Brexit story, or simply an error. Friday’s drop followed a substantial fall on Monday after Theresa May said she would trigger Article 50 by the end of March 2017.
2. Cabinet fissures emerged as Trade Secretary Liam Fox said this week Britain would see an immediate Brexit economic benefit, promising to sign trade deals on the day we leave, while another leading minister said Britain might not see benefits for “a 15-year horizon”, the Times reported. Fox is also pushing for Britain to be outside any customs union with the EU, allegedly squaring up against Chancellor Philip Hammond. In New York on Thursday to assure Wall Street Britain will seek a special deal for financial services, Hammond suggested in an interview with Bloomberg that EU single market access was as important as controlling immigration.
3. A report commissioned by leading financial industry lobby group, TheCityUK, said a hard Brexit could cost the sector up to £38 billion in revenue, lead to the loss of up to 75,000 jobs and deprive the government of some £10bn in tax revenues. Some hard Brexit backers such as Richard Tice, a property investor, said the report’s estimates were exaggerated. This followed the International Monetary Fund’s announcement on Tuesday that it had cut its UK growth forecast for 2017 to 1.1%, based on “smooth Brexit negotiations and a limited increase in economic barriers”. Economists for Brexit, an eight-strong group of Brexiteer economists, maintained their growth predictions of 2.6% for this year and next.
4. A hard Brexit could cost Scotland 80,000 jobs and cut wages by £2,000 per person per year, The Fraser of Allander Institute, an economic thinktank, warned the Scottish parliament this week, adding Scotland’s economy could decline by 5% or £8bn over 10 years. Ruth Davidson, the pro-Remain Scottish Conservative leader, said on Monday a soft Brexit was her “preferred choice”, pitting herself against the government.
5. European leaders took a continued tough stance, increasing the prospect of difficult Brexit negotiations. French President Francois Hollande said on Thursday: “there must be a threat, there must be a risk, there must be a price”. German Chancellor Angela Merkel hardened her stance linking single market membership to free movement, and urged German business leaders to back her on this. Joseph Muscat, the prime minister of Malta, which holds the European Council presidency in early 2017, said Britain will be treated “like Greece during 2015 bailout negotiations” to ensure Britain gets a deal “inferior” to its current position inside the EU.
6. With a possible impact on the quality and independence of economic advice, it emerged on Friday that foreign academics at the London School of Economics have been told they will be barred from advising the government on Brexit. Sara Hagemann, an assistant professor specialising in the EU was told submissions to the Foreign Office from non-British academics would no longer be accepted.
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Edited by Yojana Sharma
Fox and his fellow nutcases appear to want economic suicide just to satisfy their unpleasant bigotry and what appears to be a yearning to attempt the impossible by turning the clock back some 50 or so years.