EDITORIAL: Nothing conservative about a no-deal Brexit
New UK government’s approach to leaving the EU has only added to uncertainties
It may be hard to believe given the events of recent years, but there was a time in the UK when the Conservative Party was seen as a party of business, and markets celebrated its election successes.
In the nearly two weeks since 160,000 Tory members chose their latest leader and, by default, the prime minister for about 60-million fellow citizens, currency markets have responded by pushing the pound to its weakest levels in more than two years. That continued after the US Federal Reserve cut interest rates and confused the markets over its intentions for future moves, pushing the pound’s decline in July to just over 4.2%.
It surpassed the lows recorded in March 2017, when then prime minister Theresa May triggered article 50, setting on course what was then thought to be a two-year process of leaving the EU.
His premiership is starting pretty much the same way his predecessor’s did: with bluster and inflexible red lines.
That initial deadline came and went, as it became obvious that the act of undoing more than four decades of economic and political integration wasn’t going to be as simple as any of the promises made by the leaders of the leave campaign suggested. The next deadline is October 31 and Boris Johnson has promised it won’t be missed, come what may.
His premiership is starting pretty much the same way his predecessor’s did: with bluster and inflexible red lines that make negotiation and compromise almost impossible, and eventually doomed May.
On Friday, a pro-EU party, the Liberal Democrats, won a parliamentary seat in a by-election from the Conservative Party, cutting Johnson’s working majority to just one.
It took Johnson a week to even have a chat with the Irish leader, Leo Eric Varadkar, and he repeatedly turned down invitations to meet the French and German leaders.
The chaos in the early stages of the administration is hardly surprising.
On one hand, you have the prime minister insisting that the chances of a no-deal Brexit are a million to one, then you have the foreign secretary, who in his previous job as Brexit secretary admitted to not having read the Good Friday Agreement that secured peace in Northern Ireland, saying this is the likely outcome.
Whether it’s intended or not, a no-deal Brexit, where the UK crashes out without arrangements to ensure a smooth transition for business, seems to be the most likely outcome. The cavalier fashion in which the new UK government has approached the situation has added to market anxiety, as businesses don’t believe it can prepare adequately for the consequences.
There is a point to be made about the benefits of a weaker currency. It makes exports more competitive, encourages millions of tourists to flock into the country, while potentially boosting foreign direct investment with buyers snapping up cheaper UK assets.
But that’s not the message coming from industry. Earlier in 2019, Toyota and BMW, among the biggest investors in the UK, warned that a no-deal Brexit threatens the production of their cars in the country.
A slump in the currency might mean the fully manufactured car is more competitive in foreign markets, but a car isn’t produced with all components made in one country. In an integrated market like the EU, a tyre might be made in one country and a steering wheel in another.
Importing these parts has already become more expensive. Then imagine that all these components are suddenly subject to tariffs and time-consuming border checks, and it’s easy to see how manufacturing cars in Sunderland and exporting them might no longer be an appealing proposition.
The Society of Motor Manufacturers and Traders (SMMT) on Wednesday reported that investment in Britain’s car sector fell more than 70% in the first half of 2019, citing the prospect of a no-deal Brexit.
The pound’s slump has left it approaching levels from three years ago, when a no-deal Brexit was not even on the agenda. The assumption was that some sort of arrangement would be in place.
Not even the most hardcore of Brexiters argued for a clean break. Hoping that sanity will prevail does not seem to be the wisest thing. And SA is likely to be caught up in the disruptions, another headwind for our struggling economy.