Project Fear or Project Reality?
Everyone from the governor of the Bank of England to the National Farmers Union is getting worried about a no-deal Brexit, writes Eddie Ford
In what has been regarded by Brexiteers as yet another attempt to undermine the June 23 referendum, the governor of the Bank of England, Mark Carney, expressed forebodings about what lies ahead. Speaking before Theresa May’s August 3 meeting with French president Emmanuel Macron to “save Brexit”, Carney said on the BBC’s Today programme that a no-deal outcome was “highly undesirable”, but warned that its chances were “uncomfortably high” - or “60:40”, to use the recent calculation of the international trade secretary, Liam Fox.
Carney highlighted how damage had already being inflicted, saying that the UK had gone from the fastest to the slowest-growing economy in the G7 - it was only last week that the bank’s monetary policy committee finally felt confident enough to raise interest rates above the 0.5% ‘emergency level’ it had fixed in March 2009. Meaning practically, the governor explained, that the British economy had grown by a percentage point less up to spring of this year than had been “projected prior to the referendum”, with a “real pay squeeze on British households”.
Getting even darker in tone, Carney emphasised how a no-deal would cause “disruption to trade as we know it” - adding that as a consequence, there would be “higher prices for a period of time”. We will get poorer. Not much sign of the “Brexit dividend” then. He also compared his efforts to stabilise the financial system for the coming huge shock with the ongoing stockpiling of food and medicine by governmental agencies and companies. Something that might be uncomfortable for the government, seeing how just a few weeks ago Dominic Raab, the freshly installed Brexit secretary, told parliament that it would be “wrong” to say the government was stockpiling - rather, it was taking steps to ensure that there are “adequate” food supplies for Britain in the event of a no-deal departure. A big difference, you understand.
Anyway, you will be reassured to know that the banks (if nobody else) are ready for house prices crashing by a third, interest rates soaring by more than 4%, unemployment rising considerably and the economy as a whole going into recession for god knows how many years - at least according to the bank’s “robust” testing of Britain’s financial institutions, which have tripled their capital and increased their liquidity by 10 times in recent years. Don’t panic or worry about your money in the bank, or whether you can get a loan or mortgage: things are under control.
However, showing how jittery nerves are after both Carney’s warnings, the pound fell to a 11-month low of $1.2954 - with Capital Economics predicting that it could slide back to $1.20 if the UK cannot agree a deal with the EU (though its “baseline assumption” for the time being is that a deal will be reached, pushing the pound back to $1.40 by the end of 2018).
Clearly this was not the outcome the Bank of England was hoping for from last week’s interest-rate increase - all other things being equal, higher rates tend to encourage investors to buy the pound, and that reduces inflationary pressure by making the cost of imports cheaper. But so far this does not appear to be the case - the pound now looks weaker after the quarter-point increase in rates to 0.75% than it was before the move. This is mainly because the financial markets had assumed for a while that a rate rise was a done deal and thus had already adjusted the price of sterling against other currencies accordingly. Arguably, to have given the pound a real upward boost, the monetary committee would have needed to twin higher interest rates with hawkish language about the possibility of further monetary tightening in the months ahead - something it is not prepared to do at the moment, not wanting to scare the horses.
Needless to say, some were not happy with the governor’s message or reassurances. Right on cue, Jacob Rees-Mogg accused Carney of being the “high priest” of Project Fear - though he would say that, being himself the high priest of hard Brexit. Others would say that the governor is part of Project Reality.
But, for Rees-Mogg, Carney’s “inaccurate and politically motivated forecasting” has damaged the reputation of the Bank of England - this coming from a man who recently told us that we might have to wait 50 years to get the benefits of Brexit. Coming to the support of his fellow Brexiteer, Iain Duncan Smith remarked not very convincingly on the BBC that that a no-deal actually “doesn’t exist”. The “reality”, Duncan Smith argued, would be a deal under World Trade Organisation terms - the UK “already operates under the WTO, as does the EU”.
However, Mark Carney is not the only “high priest” of fear, it seems - there is also the National Farmers Union. Minette Batters, NFU president, warned that Britain would run out of food by August next year if it were asked to be wholly self-sufficient - the hot temperatures of the past few weeks had put Britain’s food production capabilities into sharp focus.1 Changing eating habits have meant perishable items, such as tomatoes, lettuce and citrus fruits, are now expected to be available all year round - hence Britain has become increasingly reliant on food grown overseas. Statistics from the department for environment, food and rural affairs show that the next most vulnerable food category after fruit is fresh vegetables, with 57% of UK requirements produced in Britain, followed by pork at 61% and then potatoes, of which 25% are imported. Britain exports more milk and cream products than it produces, and imports almost three times as much cheese as it exports, almost twice as many eggs and almost 20 times as many fresh vegetables.
Batters points out that farming “has the potential to be one of the most impacted sectors” from a bad Brexit - a frictionless free-trade deal with the EU and “access to a reliable and competent workforce” for farm businesses is “critical” to the future of British farming, she said. Batters believes the consequences of no-deal could be mitigated if the government took immediate action and gave domestic production its “unwavering support”. We shall see. Last week the Centre for Food Policy (University of London), released a briefing paper looking at British food security post-Brexit. Amongst other things, the study pointed out that the US is currently only the 10th largest exporter of food to Britain. Therefore, we read, for the US - once a magical free-trade deal has been concluded - to replace the combined food imports from the other nine of the top 10 “would require a vast food flotilla and logistics operation exceeding that of the 1940-45 Atlantic convoys”.
But, for the Moggites, the NFU and the University of London are doubtlessly part of the conspiracy against Brexit - terrifying us with the worst-case scenario to make parliament accept Theresa May’s Chequers plan/white paper to turn the UK into a “vassal state” that signs up to the EU’s “common rule book”: a rule-taker, not a rule-maker. A ‘Brexiternity’ of slow-motion non-separation involving an extended transition, long-term bridging arrangements, continued jurisdiction from the European Court of Justice, and so on. More sovereign on paper, but less so in practice. Probably not what most people had in mind on June 23 2016, when they voted to ‘take back control’ and leave the EU.
The referendum was a con and the CPGB was quite correct to call for an active boycott - and will do so again if there was a second referendum or ‘People’s Vote’, no matter how unlikely that seems as things stand now.
Theresa May obviously wants a deal with the EU, which is precisely why she went to see Macron at his very nice summer retreat in the south of France. The visit is all part of the not-so-cunning plan by the British government to ‘divide and rule’ the EU - the idea being to circumvent the European Commission and appeal directly to European leaders; hoping to pit them against the EC, especially in the shape of Michel Barnier, and in general undermine the EU’s (more or less) collective stance on Brexit.
Unsurprisingly, Europeans leaders seem to have seen through this ruse. Before the two leaders’ meeting, an Elysée Palace official ruled out Macron breaking ranks to help the UK, insisting the meeting was “not a negotiation” and “not a substitute for the negotiations” led by Brussels - adding that the French president had “full trust” in Barnier, and “that’s how it will remain”. Indeed, the French press has widely viewed May’s visit as a “cry for help”, not a bold diplomatic initiative. The centre-right Le Figaro had an especially colourful editorial which portrays Theresa May trying to wrest the steering wheel of the Brexit car from different factions of her party back home, as it “jolts over the London potholes and skids on the oil slicks of Brussels”. The conclusion is: never mind “take back control” - Britain has lost control of Brexit.
But some members of the prime minister’s cabinet, of course, would be more than happy if there was no deal and Britain defaulted to WTO rules - particularly Liam Fox, an apostle of Atlanticism who is unfortunately hardly an irrelevance, when it comes to the whole Brexit process. Almost masochistically, Fox told The Sunday Times that it is “essential” that a no-deal “looks credible” to the EU - after all, he chirpily remarked, “if it’s causing some anxiety in Britain, think what it’s causing in Brussels”. Using this logic, we can only presume that, the worst things get, the better they get: threatening suicide is the way forward. We also find out from Fox that Barnier had dismissed the Chequers plan, because “we have never done it before”, making “the chance of no deal greater”. In fact, Fox declared, if the EU decides that “the theological obsession of the unelected is to take priority over the economic wellbeing of the people of Europe, then it’s a bureaucrats’ Brexit, not a people’s Brexit” - in which case, “there is only going to be one outcome”: ie, the one he wants. The international trade secretary could not make his agenda more explicit.
The dishonest Brexiteers, of which there are many, would have us believe that our sceptered isle would flow with milk, honey and extra cash for the national health service, once we cast off the shackles of Brussels - which was always a total lie, and they knew it. But the more honest Brexiteers - a rarer breed - admit that Britain will take an economic hit. Yet ultimately Brexit will be worth it, whether it takes 50 years or not, as it will enable the UK to refocus the economy. Yes, a lot of industry will go, especially the likes of the car industry, but in the end the City will triumph, as Europe - and the world - needs the City. If the plan goes well, the British economy will be reorientated towards financial and businesses services, introducing or imposing a truly low-wage economy and big tax cuts for the rich and other so-called wealth-creators - whilst getting rid of silly and wasteful things like social services, cracking down on trade union and workers’ rights and to hell with the environment. A lean-and-mean, competitive, economy ready to take on the world.
Though this strand of thought might represent a small section of the capitalist class or even the Tory Party, they know what they want - for Britain to become an enormous rainy Singapore off the coast of Europe.