David Blanchflower

Professor of economics at Dartmouth College in the US and member of the Bank of England’s monetary policy committee (MPC) from 2006-09

Watching Brexit developments from 3,000 miles away in the US has been surreal. Fareed Zakaria, the host of a CNN show, recently wrote in the Washington Post that Britain – “famous for its prudence, propriety and punctuality – is suddenly looking like a banana republic”.

I never thought I would read anything like this about the country of my birth. Britain’s international reputation has been trashed.

It is the start of the new term at Dartmouth and my first class is about the UK and Brexit. The students are astonished. It is hard to separate the politics, which is a national embarrassment, from the economics, as the data doesn’t actually look too bad this month but are likely to be impacted further soon.

The economy to this point has held up remarkably well, but it can’t do that for ever. A worrying indicator of what may be coming was that house price growth has slowed to the lowest rate in almost eight years.

The concern is that the Brexit negotiations will drag on and that will have a major impact, especially on investment and other important areas of the economy. The consequence of that would likely be falling living standards. The past may not be a good guide to the future in a “banana republic”. A long delay to Brexit, on the other hand, would likely have positive economic consequences.

Brexit shenanigans are happening at a bad time, at the tail end of a 10-year recovery as the world economy is slowing. The major concern is that the eurozone is entering recession with France, Germany and Italy leading the charge down. China also continues to slow, and a big issue will be whether the Chinese government introduces major stimulus. Manufacturing output globally seems to be in recession. The US Federal Reserve has backed off the possibility of rate increases due to weakening data in the US and the markets are pricing in that the next move will be a cut from the fourth quarter of 2019. A disorderly Brexit represents a downside risk not only to the UK but to the rest of the world.

Unemployment has dropped to the lowest level in 44 years. But there was an increase in underemployment of 40,000, as measured by the number of part-timers who want full-time jobs, which has risen for the last two months in a row. Wage growth picked up to 3.4%, which may well be a high point. With inflation around the MPC’s 2% target, we are seeing real wages rise at about 1.5% a year. But it isn’t time to hang out the bunting quite yet as real wages are still about 5% below the peak recorded ahead of the great recession a decade ago. Workers are still hurting.

There was positive news from the public finances, as borrowing levels fell. Philip Hammond had used the spring statement to say he has as much as £26.6bn to spend on ending austerity or fight a downturn caused by no-deal Brexit. It is unclear why the chancellor hasn’t spent that money already to ease the burden on the working people of the UK, who have suffered for years from reckless austerity. Incompetence by politicians is the major backdrop of the Brexit dashboard this month.

Andrew Sentance

Independent business economist and member of the MPC from 2006-11

Despite the chaotic political situation, three important factors are keeping the UK economy afloat in these turbulent times.

First, consumer spending is being supported by a significant positive gap between wage growth (3.4%) and inflation (1.9% on the CPI measure). Employment growth is providing added impetus to consumer spending.

Second, the world economy is doing OK. Global growth has slowed as the slack created by the global financial crisis has been taken up. Most forecasts point to world GDP growing by 3.5% or so this year and next – in line with longer term trends.

Global growth has sustained the UK economy in recent years when domestic spending has been held back by Brexit uncertainty. Although the European economy and China have slowed, this is not a cause for alarm. The eurozone and China are both easing back to growth rates consistent with long-term productivity and demographic trends.

Third, while business confidence is fragile, and investment plans are being trimmed back, the business community is holding its nerve. As a member of the MPC during the global financial crisis, I was impressed by the resilience of UK businesses, which I visited around the country. They seem to be showing the same resilience now.

If we assume that no deal is averted, we should avoid a calamitous drop in business confidence and investment. However, if confidence is seriously fractured, the situation could change quite rapidly.

Politically, the UK is at its most fragile state since the second world war. But the resilience of the British economy – built up since the turnaround we achieved in the 1980s and 1990s – is now supporting us in difficult times. That could change, however, if the current political crisis over Brexit is not quickly resolved.