This week Britain slumped to the bottom of the GDP growth rate league table of advanced economies. Along with Italy, Britain is officially the worst performer among the G7 so far this year, held back by high inflation that is putting consumers under pressure. The cause of that high inflation is primarily the knock-on effect of the weaker pound, which dropped by 20% immediately after the Brexit referendum result last year.
Just because the world didn’t change on 24 June 2016 doesn’t mean that it was never going to change. The time-lag between cause and effect is a cornerstone of economic behaviour. This basic dynamic takes into consideration the notion, observable over decades of analysis, that shocks rarely impact economies – particularly sophisticated ones – overnight. The Brexit time-lag has just ended.
Before last year’s referendum, the UK looked set to deliver a strong, consistent economic performance. Leaving the European Union seemed an act of economic jeopardy, but the remain campaign’s warnings of meltdown did not come to pass. Even by the end of last year, six months after the Brexit vote, it looked as if the doomsayers had been proved wrong, with the UK economy the fastest growing in the G7 in 2016.
The weakness of the pound only seemed to inflict mild annoyance for those whose holidays had suddenly become more expensive. And besides, the leavers argued, our currency would bounce back at some point. Even the ratings agencies and the scaremonger-in-chief – the Bank of England – seemed to have called it incorrectly.
But the triumphalism and complacency of the Brexiters since then is a testament to how illiterate, politicised and pseudo-intellectual the whole discussion on economic impact has become. If I had a pound for every time a Brexit supporter confidently opined that a weak sterling will bolster UK exporters, despite it also increasing their costs, I would have … well, they would be worth a lot less than this time last year. It’s almost as if the fact that we woke up the day after the referendum to find that there was still money in the cashpoints was proof enough that it was all going to be OK. The experts were wrong!
But that’s not how it works. And the consistent depression of the pound should have been our guide. You see, currencies are the exception to the time-lag rule, because they are more sensitive and dynamic in times of economic uncertainty. The fuse of currency depreciation had been lit, and was quietly making its way towards the tinderbox of rising inflation, higher household debt and increased pressure on spending power.
The average household is now spending an additional £21 a quarter on groceries compared with last year. That may not seem a huge amount, but with inflation on the up that could mean an extra £119 over the course of this year. Airfares, package holidays and energy bills are all rising while wages remain the same.
Last month unions accused the government of ignoring the plight of ordinary workers as life becomes more expensive. The TUC general secretary, Frances O’Grady, warned of a “living standards crisis”.
And yet these significant and worrying developments have barely registered either in public debate or, indeed, in the election the country is holding that was meant to put to bed any Brexit-related uncertainty. The whole messy economic aspect has been conveniently folded under the deferred resolution of a final agreement – as if these are all merely wrinkles that will be smoothed out during negotiations once a final deal has been secured.
How did we let this happen? The economy question seems to have dropped out of the debate because it has been so debased by Brexit evangelists, backed by their cheerleaders in the press, treating any expressions of concern like sabotage. We have gone from “there will be no impact, don’t talk Britain down” to “if there is, it’s worth it”, making a martyr’s virtue of absorbing economic shocks for some greater ultimate good.
Of course, economies are unpredictable, and a pattern does not make a trend, but today these are the new, inescapable facts: the United Kingdom has not fallen below fourth place in the list of G7 economic growth since the financial crisis of 2007-8 and it is now last; UK house prices have fallen for a third month in a row, also for the first time since the financial crisis; and the pound is at its lowest point for about 30 years.
The past 12 months have undermined our ability to have any rational discussion about the economy because Brexit is now an ideology where there are only comrades and traitors. Populist pandering politicians have rendered any honest appraisal of fact as partisan.
A slowing economic performance is hitting the British people in almost every part of their lives, impacting property values, energy bills, food prices, and the pay packet they take home.
Burying heads in the sand and treating any examination of the possibility that a Brexit effect might already be upon us as treason is nothing short of a dereliction of duty. Those who know what damage our EU exit is still likely to cause have to start speaking up.
