When the global economy turns, Britain will pay the price for the dire state of its Brexit debateby George Magnus / September 26, 2017 / Leave a comment
This week at conference, the Labour Party is fudging decisions on Brexit—refusing a full debate on the subject, while the leadership pretends that we can both leave the European Union and abandon austerity. Next week at its own conference, the Conservative Party will lay bare the sham of the Florence Brexit “truce,” revealing a government strategy that amounts simply to “kicking the can.” It is embarrassing, to say the least, that the main Brexit debate is the one we are having with ourselves, much to the chagrin—if not bemusement—of our EU27 counterparts. Fortunately, the global economy is at least providing a relatively stable backdrop for the UK. But things are changing, and we should not be complacent that this benign state of affairs will continue. As things start to get trickier externally, things will also get feistier at home.
There is some good news. At home, the latest government borrowing figures through August suggest that the Chancellor may have some leeway to ease budgetary policy in his Budget statement on 22nd November. In the world at large, global institutions such as the IMF and OECD think that synchronised global economic growth will hold steady going into 2018, and that the biggest positive surprise remains the EU. The rise of populism—the latest example being Germany’s AfD party taking a 13 per cent share of the vote in Sunday’s German elections—has not interfered with the global expansion. Yet.
Moreover, although the US Federal Reserve is about to start unwinding its asset purchases and both the Bank of England and the European Central Bank have indicated they are leaning towards a partial reversal of easy money policies, none of the major central banks are likely to act inappropriately to tighten financial conditions, bearing in mind low inflation. Even here in the UK, the Monetary Policy Committee’s latest bark about a rise in interest rates may prove to be worse than its bite.
None of this means we can be complacent about the baggage we have brought with us from the financial crisis and before. Global debt is still rising and there are some particular worry-spots, including households’ unsecured debt in the UK, student and auto loans, corporate debt in the US, and above all…