Britain’s economy is already a disaster...Brexit is the final nail in the coffin
Britain is stumbling into a period of economic decline, quickening deindustrialisation and political marginalisation
Without a shadow of doubt, Britain is a car crash economy right now. The country has its foot pressed hard to the floor over leaving the European Union and is speeding into a brick wall. Love it or loathe it, Brexit poses a potentially painful pile-up for Britain’s future.
It is no exaggeration to say that after three centuries as an industrial powerhouse, Britain is stumbling into a period of economic decline, quickening deindustrialisation and political marginalisation.
Membership of the EU might have been a bane for 52 per cent of the nation that voted to leave last year, but for the 48 per cent wanting to stay in, at least Europe offered some hope of future prosperity.
There is no right and wrong now about what the future holds, but the worry is that early signs are emerging that Britain is already sliding down the slippery slope into economic obscurity.
For years, Britain has been dropping down the global rankings on economic performance, health, education and social provision. It is a poor reflection on a wealthy nation, especially the fifth-largest economy in the world. It is pointless blaming it on the 2008 global financial crash and tough austerity measures that followed to restore order to Britain’s ailing budget finances. The decay set in long before that happened.
Short-termism in industry, chronic underinvestment in key infrastructure and the lack of a coherent national economic plan have all resulted in an economy where regional development and regeneration has often been chaotic, muddled and wasteful. Market forces and government intervention have both failed to bridge yawing shortfalls in the economy.
The shock that follows Britain’s Brexit break in 2019 could be the biggest risk to the economy this century. The problem is how to model it and whether the government has the wherewithal and the nous to deal with it. Considering the three senior British politicians charged with negotiating the country’s departure from Europe, there is no pantheon of outstanding excellence.
Brexit minister David Davis, foreign secretary Boris Johnson and trade minister Liam Fox are often seen at odds with themselves and Prime Minister Theresa May. So it is no surprise markets are taking a dim view of the chances for a successful conclusion in two years’ time when Britain leaves Europe. The chances of a “no deal” or a “bad Brexit” are rising by the day.
Britain is heading into the great unknown. Crystal ball gazing seems impossible but the writing on the wall looks grim. Economic confidence and business investment intentions are taking a dive. And Europe seems certain to make things tough for Britain’s departure.
The past few weeks have seen a string of bad data from British trade, industrial production, household savings and disposable incomes. Britain’s supply side is performing badly. The trade gap is getting bigger while manufacturing output is on the slide. On the demand side, the omens are not looking good either. Britain’s savings ratio has sunk to an all-time low of 1.7 per cent while living stands are plunging.
For a consumer-driven economy like Britain, this is not good news. Household incomes are falling at their fastest rate since 2011, thanks to rising inflation, the squeeze on wages and the government’s austerity cuts. It means the outlook for consumer spending and economic growth is extremely weak.
Britain has plunged to become the worst-performing economy in the 28-member EU bloc, with growth in the first quarter coming in even lower than crisis-hit Greece. Even with interest rates running at a rock-bottom 0.25 per cent and the economy awash with boatloads of quantitative easing money, the outlook remains bleak. Britain could easily slip into negative growth as early as this year.
The main worry is the risk of a punitive Brexit settlement from the EU as a deterrent to other countries thinking about taking the same route. Frankfurt, Paris, Dublin, Brussels and Amsterdam are all vying to poach business away from London’s pole position as Europe’s financial heartland.
Meanwhile, the EU is courting a free-trade deal for Japanese car and car-parts imports coming into the European single market. It could mark the beginning of the end for Britain’s largely Japanese-dominated vehicle industry.
British industry and services could be squeezed on all fronts, leading to a dangerous outflow of the US$1.5 trillion stock of overseas capital invested in the economy.
Unless politicians change tack very soon, Britain could soon descend into national economic disaster.
David Brown is chief executive of New View Economics