The UK economy is growing and will do so faster after Brexit – even in the event of ‘no deal’

The UK economy is growing and will do so faster after Brexit – even in the event of ‘no deal’

Disappointingly for the ‘Remoaner’ lobby, the economy is going well. Employment continues to rise relentlessly, and unemployment keeps on falling, to levels below what was once thought to be ‘full employment’. Nevertheless, real wages are flat, which suggests that there is still spare labour capacity, maybe linked to still uncontrolled unskilled immigration.

Personal consumption is slowing while business activity is strengthening based on the Brexit devaluation’s switching of demand away from consumption to net exports and investment. So much is confirmed by the CBI and Bank of England agent surveys as well as by the Purchasing Managers Indices.

Goods export volume, excluding oil and erratics, was up 6.2% on a year earlier in Q2; the equivalent import volume, in spite of strong consumption growth over that period, was up only 4.5%. The terms of trade did not change, implying that both export and import prices rose by the same in response to the devaluation.

There has also been an improvement of £2.4 billion per quarter in the balance of trade in services. This is showing clear progress in Britain’s external accounts.

One does not have to be a slavish believer in the PMI indices to think that the ONS’s volatile estimates across the two quarters look quite implausible. They are of course based on quite patchy and low coverage this close to events and this is why they must be quite suspect compared with the PMIs which survey a broad spectrum of firms every month. When one combines this with the evidence of the labour market (which continues to progress steadily upwards), the suspicions multiply.

An encouraging factor in the picture is the recovery in the euro-zone economy after years of euro crisis. The PMIs in the zone are at similar levels to ours. As the Government has frequently said, it is certainly not in our interests to have a weak EU. This remains the market for just over 40% of our exports and will continue to be so whether we sign a free trade agreement with the EU or not.

What many have not really grasped, however, is that the EU’s tariffs on our manufactures average low percentages — around the 3.5% mark. We can easily absorb them, especially with sterling about 15% lower due to the Brexit devaluation. The EU cannot by international law do anything to interfere with the flow of our exports, whether by non-tariff barriers, old-fashioned non-computerised customs procedures or refusing to sign mutual agreements to standards. All such discrimination is outlawed by WTO agreements to which the EU is a signatory. The EU fails in many respects, but law-abiding it certainly is and will surely remain.

More puzzlingly, EU exporters to us will run into quite severe competition if we leave without any sort of EU trade agreement. We will sign free trade deals with many other countries which will send us goods at much lower prices than the current EU-protected ones. EU exporters will not just face the same low tariffs which we will no doubt proceed to levy on them if there is no deal; they will also face much tougher competition which will force them to lower their prices sharply.

Why are these exporters not putting pressure on the EU to sign a trade deal with us that might defer this pressure or even stop it completely in some sectors where current EU protection could be prolonged by agreement? It is hard to know, though no doubt it is bound up with EU politics; but from my viewpoint it is their problem, just as no deal will also abort any ‘divorce payment’ we might make for goodwill.

As for the French, they are presumably resigned to the problems for their farmers when we leave the Common Agricultural Policy and abandon its associated high food tariffs. Our own farmers are benefiting from the Brexit devaluation, and are mostly highly efficient, with the potential to raise productivity further still; meanwhile, smaller farmers who look after the UK rural environment will receive direct government transfers at much lower cost than the CAP.

Gradually these facts are emerging blinking from the statistical and political discussion fog fostered by our ‘Remoaner’ lobby. The Brexit process continues to be an extraordinary episode in which the common-sense economics of free trade and competition is repeatedly denied by producer interests and their allies. Usually producer interests win these contests by virtue of their lobbying and spending power.

However, this is an episode unusual in the extent to which ordinary voter/consumers have been informed and empowered by a referendum debate; for politicians it is an unhappy contest between the producers who wield indirect power over them and the voters to whom they are directly responsible at the ballot box.

According to the favourite Remoaner organs, the FT and The Economist, UK business is traumatised by the uncertainty of Brexit. Yet business constantly absorbs uncertainty far worse than that surrounding Brexit where the uncertainty merely ranges from the status quo (so-called ‘soft Brexit’) to the substantial gains from ‘clean Brexit’ as envisaged by the Government’s free trade agenda. Business must worry far more about whether the euro-zone will implode, or China will have a debt crisis, or the North Korean situation will lead to a regional war, to name but a few of its headaches. To boot, business is currently enjoying the profit gains from the large Brexit devaluation.

The boring truth is that the UK economy is continuing to grow at a moderate pace in the 2%–3% range as it has done since the financial crisis ended a few years back. However, once Brexit policies are finally in place, it promises to grow significantly faster as free trade and its implied competition work through.