By Nadina Ronc
LONDON
Since a June 2016 referendum triggered the United Kingdom’s divorce from the European Union, things have gone from bad to worse.
The economy has seen a slowdown and many financial institutions have threatened to move their offices to other EU countries.
The price of food rose almost a week after the Brexit vote and it will only continue to rise; at the same time salaries remain unchanged since 2008. The cost of living is getting higher and households are reeling from it.
But it is not only food prices which have affected the U.K. economy; everything else will follow.
Professor Anastasia Nesvetailova, director of the City Political Economy Research Centre (CITYPERC), at the City University of London, says: “First, the devaluation of sterling, which I don't think has been priced fully.
“I expect sterling to still collapse more and, so, through this devaluation everything is affected -- savings, all import and export prices, raw materials, construction, supply chains, wages. It's a whole political economy in which we are all embedded, and we have now become poorer.”
Nesvetailova also said some industries have profited from Brexit but not because they did anything different, more so because the pound is cheaper and therefore there is a bigger export market which is favoring them.
The original forecast for U.K. economic growth was set at 1.9 percent, but the Bank of England has reduced that to 1.7 percent for this year. Economic growth is also set to slow to 1.6 percent in 2018 down from a previous forecast of 1.7 percent.
This can be attributed to the fact that the U.K. has no real plan for Brexit.
Credible fallback
Former Governor of the Bank of England, Mervyn King, has said that the U.K. needs "credible fallback” in case of no deal with the EU. The fact is, he should have given this advice to now former Prime Minister David Cameron before he triggered the 2016 referendum.
The political climate at the time was shifting in both directions; King’s advice would have been better served then than it is now after U.K. triggered Article 50.
The fact is, Cameron would not have taken the advice even then because his inexperienced advisors would have advised him just as they did, which in the end triggered a breakdown in the U.K. economy.
Another matter is that Cameron should never have made the referendum vote binding if he had no plan for the fallout.
After he put the U.K. in this mess, he promptly resigned, leaving the government in a shambles over how to proceed. Cameron and his advisors went into the referendum blind, and he is now being tipped by some in the media to become the next secretary-general of NATO
But the EU was not created to be exited, it was created for lifelong membership. And while the EU itself has many faults which will never be rectified because it suits the unelected Brussels bureaucrats, at least the way it was, it brought stability.
To this day, the British government does not have a plan in place. The negotiating team is not following one plan, but instead, variations of ideas are being thrown around, none of which make sense nor which are responsive to some sort of strategy nor which can provide stability for British citizens.
The whole thing is a mess of massive proportions and the U.K. can expect to walk away with no good deal, but whatever deal they do walk away with the U.K. "will have to pay,” says Nesvetailova.
“There is no way around it. They will have to pay a lot of money and will continue to pay. It may be packaged, not as a direct EU contribution, but maybe as a combination of direct sums that, to the U.K. political electorate, will be sold as being a reduced sum, not €100 billion but maybe €50 billion.
“But the other €50 billion will have to come through other EU deals, for instance, direct investment into Poland, or direct infrastructure investment into Portugal, or agricultural policy,” she adds.
Only when the bill is paid can the U.K. move on with its negotiations, but since time is running out, chances are that any viable trade agreement even a temporary one cannot be done in the time left.
The continued instability of which companies stay and which go would mean unemployment and possibly even a recession; economic uncertainty is certainly leading in that direction. But what can the government do to appease the crises?
Well, according to Nesvetailova, it can do many things: “The problem is that is hasn’t been doing much from what we have seen.
“The overall strategy is to reduce the uncertainty; the most practical way to do it is to announce what happens on the day of the so-called Brexit.
“Do we continue along the same arrangements and can we be assured that it will continue at least for the transitional period or do we go into the cliff-edge scenario of the WTO rules?”
This means if the U.K. leaves the EU with no trade deal (or no trade deal with anyone else), it would have to apply trade tariffs on imports.
Soft Brexit
As there is currently no regulatory framework in place in the U.K. which can come in on the day Britain leaves the EU -- nor even a plan for a week after that day -- what the country would then need to do is make sure that the regular framework is functional but specify which framework that would be.
Will it be the EU law we are currently operating under or will it be something else? No economic or political decision can occur without political context; it is all about regulations.
Chancellor of the Exchequer Philip Hammond is advocating for a soft Brexit and coming under continued fire from the staunch Brexiteers. But, as Nesvetailova said, maybe even a soft Brexit is not a pragmatic solution to an enormous problem.
It assures a short-term certainty scenario for decision planners, where we continue to have the same regulatory standards, and everything remains the same, we can plan ahead, and as we plan, we can adjust or softly announce new political reality.
But this change cannot be all in one go, the U.K. would need to find money to install these new regulatory bodies in order to slowly make a transition from EU law into British law.
All this should have been a thinking option pre-referendum vote and should have been expressed to the voting public, but instead a lot of lies were told and people, naively, voted accordingly.
The vote was either an emotional response or protest against the austerity measures of the Cameron/Osborne era.
Giving a country a vote that would ultimately slow down the economy and destabilize the already-shaky job market, was a selfish decision by Cameron.
The fact that he gave the vote the green light and did not have a plan for Brexit shows the process of thinking of his government.
It is not about the people, who will be the worst affected, it is about the positions ex-ministers and their advisors will sit in, post-Downing Street.
And while there is infighting in the Conservative Party and gossip suggests Prime Minister Theresa May will not be replaced, she should have a Brexit cabinet that speaks with one voice.
Although how certain May’s future is, time will tell, one thing is for sure -- Brexit is very much happening one way or another, no matter how disappointing or harmful for U.K. interests it is.
*Opinions expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Anadolu Agency.
