The Fall­out

The ‘leave EU’ sup­port­ers may have over­pow­ered the ‘stay in EU’ vote by a nar­row mar­gin but it seems eco­nomic prob­lems for Bri­tain are grow­ing in the af­ter­math and the nation’s po­lit­i­cal and eco­nomic man­agers are hang­ing by a thin rope to stay afloat.

Southasia - - CONTENTS - By S. M. Hali

23June 2016 will be re­mem­bered for a long time in con­tem­po­rary British his­tory as that day the for­mer colo­nial power went to the polls to de­cide whether it should con­tinue be­ing a part of the Euro­pean Union (EU) or exit from it. There were log­i­cal ar­gu­ments sup­port­ing both sides of the di­vide. Some econ­o­mists be­lieved that Bri­tain was not ris­ing to its true po­ten­tial and EU was a mill­stone around its neck, hold­ing it back. Yet oth­ers saw hope in the al­liance, which had been cob­bled post-World War II to de­ter Europe from fac­ing the rav­ages of war again by con­cen­trat­ing on trade and com­merce.

Bri­tain had faced im­ped­i­ments even in join­ing the EEC (Euro­pean Eco­nomic Com­mu­nity), the pre­de­ces­sor of the EU — an eco­nomic and po­lit­i­cal part­ner­ship in­volv­ing 28 Euro­pean coun­tries. The UK was not a sig­na­tory to the Treaty of Rome which cre­ated the EEC in 1957 but sub­se­quently ap­plied to join the or­ga­ni­za­tion

in 1963 and again in 1967. Both ap­pli­ca­tions were ve­toed by Charles de Gaulle, the French Pres­i­dent, on grounds that "a num­ber of as­pects of Bri­tain's econ­omy, from work­ing prac­tices to agri­cul­ture" had "made Bri­tain in­com­pat­i­ble with Europe" and that Bri­tain har­boured a "deep-seated hos­til­ity" to any pan-Euro­pean pro­ject. Once de Gaulle had re­lin­quished the French pres­i­dency in 1969, the UK made a third and suc­cess­ful ap­pli­ca­tion for mem­ber­ship and joined the EEC in 1973. Opin­ion had been di­vided even in ear­lier years but the “ayes” held sway over the “nays.” In the 1970s and 1980s, with­drawal from the EEC was ad­vo­cated mainly by some Labour Party and trade union operatives. From the 1990s, with­drawal from the EU was ad­vo­cated mainly by Con­ser­va­tives and by the newly-founded UK In­de­pen­dence Party (UKIP).

The ref­er­en­dum it­self left Bri­tain di­vided. “Leave” won by 52% to 48%. The ref­er­en­dum turnout was 71.8%, with more than 30 mil­lion peo­ple vot­ing. Eng­land voted for Brexit, by 53.4% to 46.6%, as did Wales, with “Leave” get­ting 52.5% of the vote and “Re­main” 47.5%. Scot­land and North­ern Ire­land both backed stay­ing in the EU. Scot­land backed “Re­main” by 62% to 38% (rekin­dling the sparks of the 2014 In­de­pen­dence ref­er­en­dum), while 55.8% in North­ern Ire­land voted “Re­main” and 44.2% “Leave.”

Po­lit­i­cal fall­out in­cluded the im­me­di­ate res­ig­na­tion of British Prime Min­is­ter David Cameron who was re­placed by Theresa May, the for­mer home sec­re­tary. Ge­orge Os­borne was re­placed as Chan­cel­lor of the Ex­che­quer by Philip Ham­mond, For­mer Mayor of Lon­don Boris John­son a strong ad­vo­cate of Brexit was ap­pointed Sec­re­tary of State for For­eign and Com­mon­wealth Af­fairs, and David Davis be­came Sec­re­tary of State for Ex­it­ing the EU. Labour leader Jeremy Cor­byn lost a vote of con­fi­dence among his par­lia­men­tary party and a lead­er­ship chal­lenge was launched, while on 4 July, Nigel Farage an­nounced his res­ig­na­tion as head of UKIP.

David Cameron’s gross neg­li­gence had been his fail­ure in pre­par­ing any contin­gency plans in the event of Brexit. Ms. May has to bear the cross of in­vok­ing Ar­ti­cle 50 of the Treaty on EU, the for­mal pro­ce­dure for with­draw­ing, by the end of March 2017. This, within the treaty terms, would put the UK on a course to leave the EU by March 2019. There is a de­bate rag­ing whether Ar­ti­cle 50 can be in­voked di­rectly or through an Act of the British Par­lia­ment. Ir­re­spec­tive, Theresa May set up a gov­ern­ment depart­ment, headed by vet­eran Con­ser­va­tive MP and “Leave” cam­paigner David Davis, to take re­spon­si­bil­ity for Brexit. For­mer de­fence sec­re­tary, Liam Fox, who also cam­paigned to leave the EU, was given the new job of in­ter­na­tional trade sec­re­tary and Boris John­son, who was a leader of the of­fi­cial Leave cam­paign, is for­eign sec­re­tary.

Mean­while, in early Jan­uary, UK's per­ma­nent rep­re­sen­ta­tive to EU in Brussels, Sir Ivan Rogers, re­signed. He had pri­vately told min­is­ters a UKEU trade deal might take 10 years to fi­nal­ize, spark­ing crit­i­cism from some MPs, who be­lieve a deal can be done within two years.

The two key is­sues likely to come up in the ne­go­ti­a­tions are: how British firms do busi­ness in the Euro­pean Union and what curbs are brought in on the rights of EU na­tion­als to live and work in the UK.

The start­ing po­si­tions of ne­go­ti­a­tions be­tween the UK and EU are that the EU will only al­low the UK to be part of the Euro­pean sin­gle mar­ket (which al­lows tar­iff-free trade) if it con­tin­ues to al­low EU na­tion­als the unchecked right to live and work in the UK. The UK says it wants con­trols "on the num­bers of peo­ple who come to Bri­tain from Europe." Both sides want trade to con­tinue af­ter Brexit with the UK seek­ing a pos­i­tive out­come for those who wish to trade goods and ser­vices" - such as those in the City of Lon­don.

In the af­ter­math of the Brexit vote, it is worth­while to ex­am­ine the UK’s eco­nomic growth be­tween 2000 and 2015; what has been the sit­u­a­tion af­ter the ref­er­en­dum and what the fu­ture por­tends post-Brexit.

Fig­ures from the Of­fice for Na­tional Statis­tics (ONS) in­di­cate that the UK's cur­rent ac­count deficit widened to­wards record lev­els in the third quar­ter of 2016, with few signs that the fall in the pound in the wake of the Brexit vote had helped to boost ex­ports. Since the vote, the Bank of Eng­land has taken a num­ber of steps to boost the UK econ­omy. It cut in­ter­est rates from 0.5% to 0.25% in Au­gust - the first re­duc­tion in the cost of bor­row­ing since 2009 and tak­ing UK rates to a new record low.

The ONS stated that there was "only lim­ited ev­i­dence so far" that the fall in the pound's value had led to a "marked in­crease in UK ex­ports." The UK has long been run­ning a trade deficit, mean­ing that over­all it im­ports more than it ex­ports. In fact, the UK sells more ser­vices abroad than are im­ported - but this is not enough to counter the big­ger deficit in the value of the goods sold abroad, com­pared with the value of the goods im­ported.

In the realm of pro­duc­tiv­ity, the amount pro­duced by each worker in 2011 was still lower than it was

in 2007. An­other mea­sure – out­put per hour – de­creased by 0.2% in the fourth quar­ter of 2014 from the year be­fore, which ac­cord­ing to the ONS, in­di­cates the ab­sence of pro­duc­tiv­ity growth in the seven years since 2007 is un­prece­dented in the post­war pe­riod. The lat­est fig­ures show the econ­omy grew by 0.6% be­tween July and Septem­ber, faster than pre­vi­ous es­ti­mates.

The UK's con­struc­tion in­dus­try re­cov­ered af­ter an ini­tial down­turn that started just be­fore June's Brexit vote. The lat­est Markit/CIPS UK Con­struc­tion Pur­chas­ing Man­ager’s In­dex rose to 56.1 from 45.9 in July, al­though the fig­ure is still be­low the 50 mark that di­vides expansion from con­trac­tion.

The un­cer­tainty over what hap­pens next acted as a brake on the con­struc­tion sec­tor dur­ing Au­gust, es­pe­cially in terms of house build­ing. Sig­nif­i­cantly th­ese fig­ures also in­di­cate the sec­tor has seen a fur­ther steep rise in the cost of raw ma­te­ri­als, with in­put costs now ris­ing at their fastest pace since July 2011.

The ster­ling has fallen to a 31-year low against the dol­lar while the IMF cut its GDP fore­cast for 2017 to 1.1%. The U.K. gov­ern­ment is draw­ing up plans to try to re­as­sure in­vestors amid ex­pec­ta­tions that Prime Min­is­ter Theresa May’s long-awaited blue­print for Brexit will cause more mar­ket tur­moil.

In a re­cent re­port pub­lished by the Pol­icy Ex­change think tank, Ger­ard Lyons, a for­mer ad­viser to pro-Brexit For­eign Sec­re­tary Boris John­son, ar­gues that Bri­tain can still pros­per even if it faces tar­iffs on its ex­ports to Europe af­ter the split. In the news­pa­per in­ter­view, Ham­mond, the Chan­cel­lor of the Ex­che­quer, promised to take mea­sures to boost the UK’s com­pet­i­tive­ness if the coun­try fails to secure post-Brexit ac­cess to the Euro­pean sin­gle mar­ket. Ham­mond con­cedes that if Bri­tain were to leave the EU with­out an agree­ment on mar­ket ac­cess, then it could suf­fer from eco­nomic dam­age at least in the short-term.

Every­one does not share Ham­mond’s san­guine mood and a pall of gloom and un­cer­tainty hangs around Bri­tain, with for­mer British Prime Min­is­ter Tony Blair rec­om­mend­ing a se­cond ref­er­en­dum. Gor­don Brown, an­other for­mer prime min­is­ter warned of a dan­ger that in the next decade the coun­try would be re­fight­ing the ref­er­en­dum. The re­main­ers were feel­ing they must be pes­simists to prove that Brexit is un­man­age­able with­out catas­tro­phe, while leavers op­ti­misti­cally claim the eco­nomic risks are ex­ag­ger­ated. The die how­ever has been cast and there is no turn­ing back. Bri­tain has to deal with re­al­ity prag­mat­i­cally and not emo­tion­ally. The writer is a prac­tis­ing jour­nal­ist. He con­trib­utes to the print me­dia, con­ducts a TV show and pro­duces doc­u­men­taries.

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