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.
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.