The Guardian view on Brexit and the economy: storm clouds on the horizon
Former chancellors often criticise serving prime ministers but usually when they represent different parties. The case of Philip Hammond is all the more remarkable: only a month has elapsed since he sat in the Treasury and already he is savaging Boris Johnson for pursuing a no-deal Brexit.
On that point, the two men might as well be in different parties. Mr Hammond is conservative in an old-fashioned sense of the word – inclined to preserve things; suspicious of ideology; fiscally hawkish. Mr Johnson represents the new style of conservative radicalism – contemptuous of governing conventions, profligate and prone to nationalistic bombast. Both would describe themselves as Eurosceptic, but for the former chancellor that means wariness of the federalising side of the European project. For the prime minister it extends to aggressive severance of Britain’s ties to the continent, without alternative arrangements.
Mr Hammond knows that would be an act of national self-harm. He also claims to have had private assurance from Mr Johnson that every effort would be made to avoid a no-deal Brexit. He accuses the prime minister of reneging on that commitment by taking dictation from “unelected advisers” who are sabotaging any prospect of constructive talks with the EU. It is a serious charge – weakness, recklessness and duplicity. Mr Johnson’s allies counterattack by accusing the former chancellor of having undermined the UK’s negotiating position when he was in the Treasury by failing to make adequate preparation for the no-deal scenario. That is like accusing someone of failing to put an armoured boot on their own foot in case they might one day want to shoot at it.
Mr Hammond rightly did not see inflicting wanton financial damage on the UK as a policy worth developing. Mr Johnson disagrees and is undeterred by signs that the economic climate is turning inclement. Data released on Wednesday showed Germany’s economy shrank by 0.1% in the second quarter of the year. The UK last week posted negative growth for the same period. Both countries are on the brink of recession. Bond markets on Wednesday projected doubt about growth prospects on both sides of the Atlantic. The evidence is not definitive but, with China also tangled in a trade war with Washington, conditions are potentially in place for a worldwide slump.
Further darkening the picture for Britain on Wednesday was news that inflation has ticked above the Bank of England’s 2% target. That creates a dilemma for interest rate setters. The whiff of a downturn invites a stimulating cut, while spiking prices are conventionally tamed with a rise.
Brexit plays a complicated role in this picture because it has not yet happened. A partial economic downgrade is manifest in sterling’s depreciation (which can stoke prices by making imports costlier). But in other areas – employment, for example – the UK has proved resilient amid great uncertainty. That has bred complacency among hardline Brexiters.
The 2016 referendum did not precipitate a crash, partly thanks to a central bank intervention and partly because markets expected an orderly transition. (Some Europeans doubted Brexit would happen at all.) The remain campaign’s direst warnings – “project fear” – were not realised. Emboldened leavers have denigrated their pro-European rivals for crying wolf ever since. That jibe resonates with voters who want to believe that Brexit can be a success, although it is worth remembering that in the original fable there was, in the end, a real wolf.
The economic risks of Brexit might have been crassly mobilised for campaigning purposes but that does not make them imaginary. And every credible analysis makes it abundantly clear that the no-deal scenario is the riskiest of all – too reckless to entertain even in economic conditions more benign than the ones that Mr Johnson is now facing this autumn. In a serious administration, well-staffed with financially literate people, that would not be a controversial view. But it falls to Mr Hammond to spell it out from the backbenches because the prime minister heeds only those who willingly turn their backs on responsible government and economic reality.