The enormous economic impact of the Coronavirus is now being shown in jaw dropping hard data. The UK economy has shrunk by 20.4 per cent in April – the largest monthly contraction ever recorded. This is ten times worse than anything recorded during the 2008-2009 financial crash and four times worse than The Great Depression of 1931.
To compound this misery the UK is also feeling the economic impact of Brexit. Bloomberg research shows that Brexit is set to have cost the UK more than £200 billion in lost economic growth by the end of this year. This is a figure that almost eclipses the total amount the UK has paid into the EU budget over the past 47 years (£215 billion) since joining in 1973.
Research by Bloomberg Economics estimates that the economic cost of Brexit has already hit £130 billion ($170 billion), with a further £70 billion set to be added by the end of this year. The British economy is now 3 per cent smaller than it could have been EU membership had been maintained.
In a tragic twist of irony, the scale of the EU payments were central to the Leave campaign’s case for Brexit and “taking back control of our money” and it now looks like the cost of Brexit itself is going to be significantly higher than all of those budget contributions over the past half-century – even before the UK actually leaves the free trading arrangement of the single market at the end of 2020.
Boris Johnson has stated that he wants Brexit to act as a stimulus to “unleash Britain’s potential” and create a “golden era” but instead, even before the UK has lost access to the single market, the UK finds itself in an a health and economic crisis with even greater economic risks ahead. The Prime Minister still has to negotiate new trading arrangements with the EU, which creates another potential ‘no deal’ cliff-edge at the end of the year.
“Leave means Leave” is still the empty Brexiter mantra. Michael Gove last week confirmed the UK will not extend the transition period & the moment for extension has now passed. He stated that, “On 1st January 2021 we will take back control and regain our political and economic independence”.
Delusional crass logic
There is a delusional crass logic to this statement. Michael Gove wants the UK government to ‘control our own borders’ after the Brexit transition period ends. Why didn’t they do that when thousands of people were still arriving at UK airports and without testing and quarantining during the Coronavirus lockdown? And anyone who thinks that the lockdown must end to save our economy but also wants the UK to end the Brexit transition period on 31st December, therefore risking further damage to our economy, probably needs to take a long hard look at their inconsistency of logic.
Even after four long years, the Brexiter ideology remains all about the principle of freedom, but without any clarity or understanding about what might be done with this freedom.
This hardball but empty rhetoric has consequences. It creates even more business uncertainty for manufacturers and exporters and this uncertainty creates further reduced confidence in the value of the pound which, in turn, has huge consequences on the Producer Price Index (net input prices of materials purchased in the UK) which has increased by 10 per cent since the 2016 EU Referendum – placing more expense on our importers of overseas goods.
Future trading arrangements are likely to leave the UK in a perilous situation with no guarantee of free trade with the EU or, indeed, outside of the EU. The Government was recently dealt a blow after the Australian Government rejected a UK free trade offer that included visa-free work and travel between the two countries.
Not that committed Brexiters accept any of this economic evidence. After the result of the EU Referendum, predictions of economic costs connected to Brexit were dismissed on the grounds that “you can’t predict the future” or “project fear” or “Remoaners talking the country down”. But, as the costs of Brexit are ratcheting up, it is this doublespeak that cannot be reasoned with.
In reality, it is the uncertainty of what Brexit actually means that is creating economic uncertainty at a time of economic calamity due to the Coronavirus crisis.
One of the biggest paradoxes of Brexit is that the majority of economic experts who understand what Brexit means at a practical level do not support it, whilst most of those who support Brexit do not understand what it means at a practical level.
This uncertainty goes right back to a problem that we have faced since the EU Referendum: a lack of any realistic definition from the Government on what Brexit really means or how to do it.
Economic realism and political delusion
As for what the economic costs of Brexit will eventually end up being, that will largely depend on what kind of trade deal gets done and here confusion continues to reign. Based on the huge difference of opinion between what the UK government wants and what the EU wants in terms of a trade agreement, there is a sense that we are heading towards a re-run of the past four years, as we hurdle towards the trade deal cliff edge of 31 December 2020 when the transition period ends.
This conflict between economic realism and political delusion continues to be unresolved. This is likely to continue as the negotiations with the EU progress and the internal fights of the Conservative Party continue to drive the whole process. Pragmatism versus delusion will continue. There will be no winners, just zero-sum game outcomes and further economic costs to the real economy.