Brexit is both a political and an economic choice. But a no-deal Brexit would be an entirely political one. Boris Johnson’s blustering openness to no-deal derives from many things. Partly it stems from the fact that, to the keenest leavers, Brexit has always been an article of belief rather a policy programme. Partly it derives from the fear that only a decisive break will puncture the threat from the nationalist Brexit party. Partly it follows from the fact that he and many like him do not ultimately care about the Northern Ireland peace process, and are not bothered about the concerns of the devolved nations either. In the end, however, a no-deal Brexit is an act of faith-based politics and not a rational choice.
It would also have very serious and perhaps destructive economic consequences. Some of those are becoming clearer by the day in response to the Johnson government’s prioritisation of politics. The most instantly destabilising is the fall in the value of the pound, which has dropped from $1.26 a month ago to just above $1.20 on Thursday. This puts the exchange rate within a whisker of the lowest for two and a half years and in sight of the depth to which it plunged just after the Brexit vote. But this is not a controlled devaluation. It is a freefall one. It benefits other economies without empowering ours. If a Labour government was doing this, it would be crucified for its incompetence.
Even more disturbing is the decline in business investment. No-deal Brexit preparations are not the sole reason for capital’s institutional caution. International trade disputes and downturns also feed into an uncertain atmosphere. But the no-deal possibility does nothing except reinforce the mood. The result is a downward spiral of deferred decisions, stockpiled goods, declining output and avoidance of research outlay and product development. Output has fallen for the first time since the financial crisis, says the CBI. The car industry, still a major UK employer, has been particularly hard hit. Vauxhall this week said it may close its Ellesmere Port plant. BMW’s warnings show that a similar move may be imminent at Cowley.
Unsurprisingly, the Bank of England said on Thursday that the risk of recession is growing, even before an actual no-deal takes place. The UK has already pencilled in zero growth in the second quarter. It would be a surprise if the third showed a better result. On the Bank’s estimates, 2019 will show the weakest UK growth since 2009 – even with EU membership – and it will be declining by the start of 2020. The Bank continues to stick to the official government message that a smooth Brexit deal is still expected. But even it acknowledges that with no-deal, the exchange rate will weaken further, inflation will rise and growth will slow even more for at least the next year.
A rational policymaker would therefore be seeking ways of avoiding no-deal rather than feeding expectations that it will happen. The Johnson government, though, has ramped up the rhetoric and pumped in another £2.1bn in public money, not least on its own propaganda. Some of its commitments – like the pledge to buy UK lamb to protect hill-farmers – seem to have been made up on the spur of the moment. Others, like the disgraceful relabelling of the Irish backstop as anti-democratic, when it is not, are lies designed to mislead the public. For a government to say it does not want something to happen because it would be so damaging and then to spend so much of its money and its political capital on the possibility that it will is a shameful strategy. Nothing matters more in British politics right now than that MPs use every weapon to prevent a no-deal exit.
