Two months on, leave campaigners now acknowledge that a key driver of their successful campaign was not to argue via fact and evidence, but rather to stir raw emotions – “psy ops” as Iain Duncan Smith has called it. Fact-based criticism was dismissed as part of “Project Fear”, a way of monstering inconvenient challenges to the blithe it-will-all-be-fine claims of leave. It worked then, and to a saddening degree, it is still being deployed.
There has been no Armageddon, the Brexiters say, but economies, like supertankers that respond slowly to changes of steering direction, exhibit slow responses – especially to an event that has yet to happen. Nobody economically literate thought that unemployment, always a lagging indicator, would immediately soar in the weeks after the vote. Nor would tumbleweed now be blowing through high streets.
Yes, George Osborne’s “punishment” budget – an attempt to dramatise the impact of weakening longterm economic growth on any chancellor’s options – was over the top. But in the context of leave’s specious NHS claims it was no more than a misguided attempt to fight abusive statistical fire on the same terms.
Stock market buoyancy is a function of sterling’s weakness and of the Bank of England’s “sledgehammer” monetary response – itself born of the bank’s own deep apprehensions of a “material slowdown”. Thus, too, the current resilience of retail sales. But what matters is future intent. Here surveys of business and consumer confidence tell a more ominous story. The commercial property market and construction, where decision-makers are compelled to make longer-term assessments, are already experiencing sharply weakening conditions.
Prospects over the next five years are sobering – even alarming. The British and European economies are inextricably interconnected, as you would expect after more than 40 years of EU membership. Much of what remains of our manufacturing industry is dependent on free movement of goods and people, of which the newly successful motor and aerospace industries are typical exemplars. Industries as disparate as higher education, agriculture and financial services have prospered directly from EU programmes and the single market. Unscrambling all these hard-won and valuable relationships is bound to have a deleterious effect.
Further, the world’s companies come here to enjoy the UK “aircraft carrier” effect – exporting into the EU single market from an exceptionally business-friendly environment. Nearly 500 multinational companies have their European or global HQ in Britain – five times more than Germany – a major boost to our business services and commercial property industries alike.
Now the “aircraft carrier” is torpedoed – but until we know the details of Brexit nobody can tell whether it is badly crippled or sunk – along with the economic activity that derived from it. Is the end result likely to be Brexit-lite, with continued access to the single market and some compromise on free movement of people? The Tory right and their media allies will insist that is a sell-out, and will the Labour party want to be painted as a friend of immigration? In which case Britain will be compelled to negotiate trade deals with 27 EU countries, and another 52 deals with the countries with whom the EU has deals in turn. What will the resulting tariff – and indeed non-tariff – regime be? When will they be concluded, given they take on average seven years? Liam Fox trumpeting possible deals with Australia and Azerbaijan in a decade’s time is no substitute for knowing the answer, or better still having free and uninhibited access to the vast market in our own continent.
This is the “dust cloud” of uncertainty of which the chief economist of the Bank of England, Andy Haldane, recently warned. It can be partly ameliorated, certainly, but it can’t be removed by an active fiscal policy and industrial policy. There will plainly be some increase in exports with a lower pound: but the response was desperately weak after sterling’s fall in 2008-9. More importantly, who is going to make a major investment in the UK in these circumstances, even with a weaker pound? Two economists (Nauro Campos and Fabrizio Coricelli – yes, experts) calculate that foreign direct investment will fall by a quarter. And if or when the uncertainty lifts, will it be because we have a hard or soft Brexit? It was for these reasons that every reputable forecaster predicted Brexit would lead to output falling below what it would otherwise have been in the years ahead. Not lurid pictures of an Armageddon; rather a cool assessment of economic realities, casually dismissed as “Project Fear”.
It could even be worse. Economies can get trapped in vicious downward spirals. Falling investment begets falling investment. A weakening commercial property market spells weakened bank balance sheets, and potential credit constraints. What kind of recovery will happen after the inevitable slowdown or recession next year? What will be the regime for agriculture, for science, for start-ups, for aerospace, for financial services? Who has confidence in Messrs Johnson, Fox and Davis putting the interests of the economy and jobs before their ideological predilections?
We have been plunged into a mess. The EU never obstructed the vital structural changes to the British investment and innovation ecosystem that had to be made, in or out. Now we have to deliver those reforms beset by the disastrous uncertainty of leaving the world’s greatest trading bloc. For what? Not to co-operate with our European neighbours in what, in my view, is a noble cause? To unleash the most disturbing outburst of anti-foreigner sentiment I have witnessed in my adult life?
Of course opinions vary. As you may have seen last week, Larry Elliott, the Guardian’s current economic editor, is upbeat about Brexit. I, a former one, am profoundly concerned. Readers in the years ahead will judge which of us was right.
