What if Napoleon had won the battle of Waterloo? What if Lord Halifax rather than Churchill had become prime minister in May 1940? To the “what if” history book could soon be added a new chapter – “what if” the UK had exited the EU with a deal in October 2019?
That, despite everything that has been happening at Westminster in the past week, remains the assumption of the Bank of England. In its last inflation report before the Brexit deadline, the Bank said its base case was a smooth transition to a UK-EU trade deal. Its projections do not include the possibility of a no-deal exit.
The financial markets take a rather different view. As far as the City is concerned the risks of no deal have markedly increased since Threadneedle Street last produced an inflation report in May. Over the past three months the value of the pound has fallen by almost 6% and traders are now betting on rates being cut by a quarter point rather than being raised by a similar amount.
Boris Johnson, prime minister
Johnson told the Treasury select committee in March 2016: “Our relationship with the EU is already very well developed. It doesn’t seem to me to be very hard … to do a free trade deal very rapidly indeed.”
Speaking at a Vote Leave event in March 2016, Johnson said: “I put it to you, all those who say that there would be barriers to trade with Europe if we were to do a Brexit, do you seriously believe that they would put up tariffs against UK produce of any kind, when they know how much they want to sell us their cake, their champagne, their cheese from France? It is totally and utterly absurd.”
Johnson, then foreign secretary, told the House of Commons in July 2017:“There is no plan for no deal because we are going to get a great deal.”
Dominic Raab, foreign secretary
Two months before the June 2016 referendum vote, Raab told Andrew Neil on BBC Sunday Politics: “We’re very well placed, and mutual self-interest suggests we’d cut a very good deal and it’s certainly not in the European’s interests to erect trade barriers.”
During an appearance on the BBC’s Daily Politics in April 2016, Raab added: “The idea that Britain would be apocalyptically off the cliff edge if we left the EU is silly.”
Michael Gove, chancellor of the duchy of Lancaster
In April 2016, Michael Gove said the UK would have the best of both worlds. “Outside the EU, we would still benefit from the free trade zone which stretches from Iceland to the Russian border,” he said. “But we wouldn’t have all the EU regulations which cost our economy £600m every week.”
Liam Fox, former international trade secretary
After the referendum, in July 2017, the then-international trade secretary Liam Fox said: “The free trade agreement that we will have to do with the European Union should be one of the easiest in human history. We are already beginning with zero tariffs, and we are already beginning at the point of maximal regulatory equivalence, as it is called. In other words, our rules and our laws are exactly the same.”
This complicates matters for the Bank because it uses the current exchange rate and the expected path of interest rates to produce its forecasts even though its Brexit assumptions are more benign. That, as the Bank freely admits, leads to “inconsistencies” in the forecast.
As a result, the inflation report does not add much to the sum of human knowledge. The Bank has cut its growth forecast for the second quarter from 0.2% to zero in the light of weaker global activity and heightened Brexit uncertainty, but that’s hardly news. It says a no-deal Brexit would lead to a further fall in the pound, higher inflation and slower growth – which is a statement of the blindingly obvious.
And the report was modestly tougher than the City might have been anticipating. The City fully expects the Bank to cut rates in the event of a no-deal Brexit: the Bank is maintaining its line that borrowing costs could go either way.
What’s more, even if a deal led to a rise in the value of the pound and higher interest rates than currently expected, the monetary policy committee thinks that further action would be needed to prevent the economy from overheating.
By the time of the next inflation report in November a lot will have become clearer. For now, the Bank’s forecasts are even more of a stab in the dark than usual.
TV gambling ad ban is no crushing defeat for industry
Cricket fans tuning in for the first day of the Ashes had something of a shock. Not the flurry of early Australian wickets but the fact that between overs a new ban meant they were spared the customary barrage of TV gambling ads. Football fans will also notice the difference because the rules apply to all live sporting events apart from horse and greyhound racing shown before the 9pm watershed.
Anybody who thinks this represents a crushing defeat for the gambling industry is mistaken. To be sure, the ban reverses the wrong-headed 2005 decision of Tony Blair’s government to allow casinos and bookies to advertise on TV for the first time.
But this is not a game-changer when it comes to protecting children and the vulnerable from the risks of gambling addiction. For one thing, the gambling industry, like the best spin bowlers, knows how to mix things up. Online advertising and direct mail shots are more important marketing devices than TV ads these days.
What’s more, there will still be gambling ads during sporting events on TV, courtesy of shirt sponsorship deals and the advertising hoardings round the perimeters of grounds.
Put simply, the gambling industry has weighed up the odds. The voluntary ban is a hedge against the risk of tougher legislation in the future that might have far greater financial implications. The fact that the most vocal opponents of the change have been the TV companies speaks volumes.
