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Brexit fantasy jars with economic consensus

Arthur Sullivan
January 3, 2020

Brexit is near, but the future UK relationship with the EU remains as foggy as ever. Two recent polls suggest a sharp divergence of views between experts and the general public on how things will unfold for the economy.

Großbritannien Wahlkampf
Image: AFP/A. Dennis

"Get Brexit Done" was the seductive mantra that helped propel Boris Johnson's Conservatives to a romping victory in last month's UK general election.

But the second part of the slogan, "Unleash Britain's potential," also appears to have caught the popular imagination. According to a New Year's YouGov survey, conducted on behalf of The Times newspaper, UK citizens are becoming more optimistic about the prospects for the country's economy.

Asked just before Christmas about their financial prospects for 2020, one in five said they expected their own personal situation to improve before the end of the year, a sharp increase from the previous year's survey.

While divisions over Brexit are reflected in the fact that one in four polled believe their situation will worsen, that figure has also fallen from the 40% who said the same in last year's poll.

Yet polling by another British newspaper paints a rather different picture of the UK's 2020 economic prospects. Every year, the Financial Times surveys 85 leading economists about the year ahead. This year, the vast majority predicted little or no growth for the UK economy, citing chronically weak production figures and continuining uncertainty over the nature of the future UK-EU relationship.

Such sober reasoning contrasts sharply with Johnson's New Year message which trumpeted the dawn of "a fantastic year and a remarkable decade."

Lie back and think of Brexit

The 80-seat Conservative majority in parliament means the EU-UK Withdrawal Bill will now easily pass and will almost certainty lead to the UK officially leaving the EU on January 31, or else shortly after. Johnson's spiel centers on the idea that, with the way finally cleared for Brexit to definitely happen, it's simply now a case of "here come the good times."

It's true that a significant amount of uncertainty has been lifted by the election result and it has had an impact in the stock market. The FTSE 100 index of leading companies closed 12% higher at the end of 2019, having fallen by the same amount in 2018.

However, 2019 was overall a good year for stock markets globally and enthusiasm over any so-called "Brexit bounce" is dampened by the fact that the pound fell on Thursday after news that British manufacturing activity dropped in December for the eighth month in a row.

The Bank of England has downgraded its forecast for UK GDP to have grown by just 0.1% in the last three months of 2019. Yet the stagnation appears to have had little impact on the attitudes of those who backed the Conservatives in the election.

Half of Conservative voters said that the economy was in good shape and 42% of all polled, roughly the same amount as voted Conservative, believed their jobs were safe for 2020. Just 11% felt they were at risk.

The dismal science

Both the rising public optimism and Johnson's soaring rhetoric jar with the majority view of the economists polled by the Financial Times.

Around 75% of economists said they believed there would be little or no change in UK growth in 2020.

There is growing optimism among the British public over the country's economic prospectsImage: picture-alliance/empics/C. Radburn

Sluggish manufacturing growth and a lack of business investment is expected to continue in 2019. But many polled said they expected consumer spending to just about offset this, driven by high employment figures and low inflation. Overall though, a majority said household finances would not improve in 2020.

Some said the continuing cycle of weak investment would eventually put pressure on jobs. "In the private sector, the long period of underinvestment will start to result in pressure on wages and potential layoffs," said Kitty Ussher, chief economist at the think tank Demos.

Many of the economists, who come from both academia and the private sphere, pointed to the trade deal negotiations between the EU and the UK as the key to the country's mid- and longer-term economic performance.

The vast majority felt that until an EU-UK trade deal was secured, there would be no sustained revival for the economy. That seems like a reasonable belief, given that close to 50% of current UK trade is with other EU nations.

Such a position supports the view that far from getting "Brexit done," the election result has merely got Brexit started, with the real consequences of Brexit only apparent once the future EU relationship has been confirmed.

Enough of the experts

So, rather than interest rate cuts, fiscal stimulus, productivity figures and vague promises of global trade deals and sunlit uplands, it's the drab negotiating rooms of Brussels bureaucracy that matter most right now when it comes to the UK economy.

Symbolbild Brexit | Europäische Kommission in Brüssel
Image: Getty Images/AFP/E. Dunand

Johnson's vow to walk away from negotiations at the end of 2020 if no trade deal has been agreed has put the prospect of no future relationship UK-EU deal back on the table. He also says he wants a trade deal along the lines of the EU-Canada deal, an arrangement which would see significant trade barriers emerge between the jurisdictions.

Yet Johnson repeatedly lied during the Brexit process and has consistently changed positions he previously said he never would. Phil Hogan, the EU's trade commissioner, recently predicted that Johnson would change position on extending the post-Brexit transition period as well.

Given that the likelihood of the UK and the EU striking a trade deal in 11 months has been dismissed by most experts as fanciful, if Johnson were to stick to his word, then the UK economy would be set for a period of serious turbulence from 2020 on.

Yet the views expressed by many in The Times YouGov poll appear to place little weight on this economic consensus.

During the 2016 Brexit campaign, Johnson's Conservative colleague Michael Gove famously said: " I think the people in this country have had enough of experts with organisations from acronyms saying that they know what is best and getting it consistently wrong."

The contrasting New Year polling suggests this divergence is becoming entrenched. We'll all have to wait a bit longer to see which view ends up closer to the eventual truth.