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Analysis

Economy can no longer be ignored in Brexit debate

by Luke Lythgoe | 12.06.2017

Since last year’s referendum, Theresa May and the hard Brexiters have used the UK’s economic resilience to push their brand of Brexit. They must now put British businesses and households before destructive dogma.

Economic uncertainty was already nagging at British businesses before Friday’s election result. The hung parliament that the election produced only days before the Brexit negotiations were due to start now makes the situation critical.

The political fallout on Friday has been followed by a barrage of grim economic news on Monday, partly caused by the inconclusive election outcome, and partly as a long-term result of wage-squeezing inflation brought on by the plunge in sterling after last year’s Brexit vote.

  • Business confidence has plummeted since the election result. A poll of 700 business leaders by the Institute of Directors (IoD) showed 57% were either quite or very pessimistic about the economy over the next 12 months – a negative swing of 34 points on the previous month.
  • Growth within the UK services sector – which makes up 80% of the economy – has ground to a halt and is on the brink of shrinking, according to a report by accountants BDO.
  • Another survey from Lloyds Bank and IHS Markit showed a three-month low in business activity in the manufacturing and service sectors, saying a “squeeze on household budgets from rising prices dampened growth rates”.
  • A report by Visa showed the first fall in consumer spending since 2013.
  • Retail analysts Springboard showed a 1% fall in footfall across all retail destinations.

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Respondents to the IoD survey said a trade deal with the EU should be the government’s priority. Business leaders have accused May of ignoring their concerns since coming to power, a charge the prime minister denies. If the prime minister finally takes heed, could we have heard the last of her reckless mantra “no deal is better than a bad deal”?

Recent reports follow the news early this month that the UK had now slumped to become the slowest growing of the G7 nations. At the start of the year hard Brexiters were crowing when the UK growth ranked second among G7 economies, claiming it as proof that Cameron and Osborne’s “Project Fear” was just fiction.

This weight of economic data can no longer be shrugged off, and there are hopeful signs in the immediate aftermath of the general election that pragmatism and economic sense may finally be gaining ground over Brexit zealotry. Chancellor Philip Hammond has reportedly told May that his support is conditional on her taking a softer approach to Brexit for businesses. Meanwhile business secretary Greg Clark held a meeting with business leaders on Friday, with hopes that their concerns will now be listened to. Outside Cabinet, a number of voices across parties have urged more consensus on Brexit – even a cross-party commission to run the negotiations.

It’s not much yet, but these are early signs that voters might “take back control” of Brexit policy from the reckless ideologues who cooked up that soundbite in the first place.

This article has been corrected to acknowledge revised GDP growth figures showing the UK was the slowest growing G7 economy, not joint slowest with Italy as was previously stated.

Edited by Geert Linnebank