FAR from blazing a path to new heights the British economy is well and truly in the doldrums with little sign of a fair wind whipping up to fan things back into life. Like Earth's climate it is on the edge of an avoidable catastrophe.
According to Will Hutton, economic journalist and commentator, the current British economic debate is therefore all the more bewildering, marooned as it is in a discourse in which one of the pivotal economic facts of 2022 is largely ignored.
Writing in The Observer newspaper (3 July 2022), he says the Chancellor and Governor of the Bank of England talk about the dangers of inflation, of the risk of a wage price spiral and the need for pay restraint – but never about the escalating sterling crisis and what lies behind it.
“But Brexit is not going away and it cannot be avoided,” he asserts, while reminding us that last week we learned that in the first three months of 2022 Britain’s current account deficit was the worst since records began in 1955.
It stood at a stunning 8.3 percent of GDP – the kind of deficit recorded by “banana republics before they collapse into slump, banking crises and hyperinflation”.
Hutton says the figures are so “terrifyingly bad” that even a shaken Office for National Statistics cautions that it is uncertain about the quality of its own data.
“But the core reality cannot be dodged and revisions will impact only at the margins rather than reverse the story: real export volumes over the period are down 4.4 percent and import volumes up a gigantic 10.4 percent.”
Apologists point to exploding energy costs, statistical vagaries, the ongoing distortions of Covid, weak world markets and supply chain effects - all of which are playing their part.
“But what cannot be mentioned is Brexit and the obvious depressive impact it is having on UK exports and inward investment flows,” he writes.
"Britain is entering dangerous territory – the economy is falling into recession, investment is flat, while inflation, high across the industrialised world because of the fallout from the war in Ukraine, is highest in the UK largely because of the weak pound, which has no support from any quarter.
"The refusal of the Governor of the Bank of England, Andrew Bailey, even to acknowledge what is happening and why is beginning to be a source of lack of market confidence in itself.
“Without full access to the EU single market and customs union – the UK’s largest market – there is no possibility of an export recovery, nor a recovery in inward investment, nor a lifting of economic confidence,” says Hutton.
“As the Bank of America warns, Britain faces an existential sterling crisis, made worse because of the refusal of the government and many economic commentators to look the truth in the eye.”
Hutton cites the 1976 sterling crisis, triggered by the conviction of the foreign exchange markets that already very high inflation was certain to get out of hand, as an eerie parallel.
"There was nothing to prop up a falling pound, given the current account deficit was running at what seemed an unimaginable four precent of GDP – half today’s deficit," he says.
But one of the big differences between now and the 1970s is that back then the UK was embedded in a network of strong trading relationships. Having recently joined the Common Market, it could trade its way back to international creditworthiness with North Sea oil about to reinforce the impetus.
Hutton believes that Britain needs to be in the single market and customs union to have any prospect of price stability and growth. “It needs to be within the political architecture of Europe for its own security, given the dark menace of Russia,” he says.
“The British economic and political ship is foundering, damaged by the rock of Brexit; its captains need to be called out for their errant seamanship. A fundamental change of course is an imperative. The future political stars in both the Labour and Conservative parties are those with the courage to say so.”
Hutton also derided the Labour opposition for its “vows of silence”, a situation which Sir Keir Starmer began to remedy this week in the first of several speeches outlining future Labour policies.
Starmer’s Brexit 'policy' - essentially to “Make Brexit Work” by being more cooperative and less antagonistic towards Europe - is hardly brave or inspiring but it reflects a harsh political reality.
With a lawyer’s forensic mind, he knows the remotest hint about rejoining the single market or customs union would be a huge gift to the Tories and their right-wing media clients, who’d love nothing more than to fight the next election on Brexit once again.
The hard Brexit tide maybe turning in the minds of the public but, much to the chagrin of many ‘remainers’, Starmer has to play it cool for now at least.
Editor’s note: Will Hutton is a British journalist and was formerly editor-in-chief for The Observer, for which he now writes a regular column. He co-chairs the Purposeful Company, and is the president-designate of the Academy of Social Sciences. The full article, on which this commentary is based, is on this link
