The disappointing second quarter performance of the British economy has caused divisions among cabinet members and a revision of the position regarding a transitional period and EU exit strategy. Controversy, uncertainty, foreign criticism and plans for social unrest have additionally contributed to the current gloomy state of UK politics.
Brexit Causes ‘Notable Slowdown’
The British economy showed signs of a notable slowdown, as second quarter GDP increased by only 0.3%. Conclusive with the second quarter, the economy delivered its weakest six months of growth since 2012.
Last week, the Bank of England left monetary policy unchanged, holding interest rates at 0.25%, a decision aligned with markets’ and forecasters’ expectations. It also released its quarterly inflation report, with revised forecasts for economic growth and inflation. Growth rates are expected to drop from 1.9% to 1.7% in 2017 and from 1.7% to 1.6% in 2018, while inflation is expected to increase to 3% by October, before declining to 2.2% by 2020.
The unresolved policy riddle that remains at the BoE is the balancing of inflation, amid a weak pound caused by Brexit, and the slowdown of the economy, which impacts consumer spending and investment. The resulting uncertainty will have consequences on growth in the future, according to governor Mark Carney.
The negative consequences on the British economy have already resulted in divisions among cabinet members regarding a transitional period. The poor performance and assessment that the economy will remain “sluggish”, have created a stronger case for “soft Brexit” and have strengthened Chancellor Philip Hammond’s position that Britain does not need the economic shock of leaving the EU single market and customs union simultaneously.
Hammond’s transition deal, additionally supported by businesses and the BoE governor, has recently lead the government to initiate plans for publishing a proposal for a transitional customs agreement. If agreed, it will be published in the week of August 14, including a document regarding the Northern Ireland border issue.
The growing momentum for a smooth transition is supportive of John Kerr’s opinion, the creator of Article 50, who, earlier in July, stated that public opinion will shift when the economic situation worsens.
Last Monday, the Irish Prime Minister Leo Varadkar stated that he hopes “Brexit does not happen”, as he thinks that staying in the single market and the customs union “would be the best outcome for Ireland and Northern Ireland and Britain”.
Earlier, the Maltese Prime Minister Joseph Muscat also expressed his thoughts that Brexit might not happen and that the mood in Britain has changed since the vote on EU membership. According to Muscat, who once called the Brexit vote “a disaster,” the referendum resulted in a situation with “only losers.”
“It would be good if a political leader in the U.K. stands up and is courageous enough to address this new situation. Someone who says: let’s put the Brexit end-deal to a popular vote”, according to him.
Second Brexit Referendum?
The new situation in the UK has led some scholars and former political leaders to address the issue of a second referendum.
Vernon Bogdanor, professor of government at King’s College in London and David Cameron’s former politics tutor, recently stated that a likely second Brexit referendum would be a solution to the deadlocked parliament, the possibility of an unfavourable deal and the division of both parties regarding Europe.
“Brexit, after all, raises fundamental, indeed existential, issues for the future of the country. That is why the final deal needs the consent not only of Parliament but of a sovereign people”.
Romano Prodi, the former head of the European Commission and Italian Prime Minister also stated that an increasing number of people were privately suggesting that a second referendum may be necessary. However, a second referendum would be almost impossible. Instead, a compromise on both sides would be required in order to avoid economic suicide.
In Britain, currently, only the Liberal Democrats are open to a second referendum on any deal that may result from the Brussels negotiations. Even though unrealistic, the possibility of a second referendum could lead to reopening of the question whether Britain can unilaterally revoke the Article 50 exit clause.
“Brexit Chaos” Was a Tactical Strategy for Time
The impressions after the first day of Brexit negotiations in Brussels were that the UK seemed disorganized, which caused a clash of opinions among EU officials with different levels of experience with the British. Some observed it as a potential trap, while others believed it was the result of serious division in the British political class.
According to some of the diplomats, the pretext of chaos in London was a tactical bluff for time, that would leave the EU feeling pressured to agree to a future trade deal rather than allow a disorderly withdrawal. Other EU officials thought the British strategy was an outreach to corporate executives in the EU, especially in countries that would be hard hit by Brexit. UK’s strategy was to win over friends with arguments that Brussels has not been focusing on securing a trade deal that would protect businesses in the future, due to its focus on winning the initial negotiations over Brexit.
In relation to the negotiations, Nick Timothy, Prime Minister Theresa May’s former adviser, stated that the UK should be prepared to leave without a Brexit deal rather than agree to unfavourable terms. The PM has insisted that “no deal is better than a bad deal”, indicating the UK would leave the EU and rely on World Trade Organisation rules after Brexit if the Brussels offer is unacceptable.
Former BoE governor Lord King also warned that the UK needs a “backup” plan in case it fails to reach a trade deal with the EU. UK needs to be better prepared for a “no deal” Brexit to show Brussels there is a “credible” alternative should the negotiations fail.
“Autumn of Discontent”
The growing discontent with the situation in Britain has lead a group of anti-Brexit supporters, called the People’s March for Europe, to organise a pro-EU march in central London for September 9. The march will be one among the numerous mass protests during the forthcoming “Autumn of Discontent”, whose goal is to prioritize the possibility for remaining in the EU among political leaders.
Thousands of activists, including Star Trek actor Sir Patrick Stewart and former Labour spin-doctor Alastair Campbell, will march from Hyde Park Corner to Parliament Square, protesting against the Brexit vote.
Confusion and Chaos
The current political situation in the UKcan be best described as chaotic, controversial, disorganized and destructive for the economy and society. Unfortunately, the confusion and uncertainty among political leaders, economists, businessmen, investors and the general public, caused by Brexit, are most likely to persist and deepen in the second half of the year.