19th Mar 2018

Column / Brexit Briefing

Maintaining the Brexit balancing act

  • Bank of England governor Mark Carney has come under pressure for having predicted "a risk of recession" in case of Brexit. (Photo: Bank of England)

Autumn should have been the time that Britons started to feel the first pinch of post-Brexit economic pain. The doomsayers have been disappointed so far. The pound may have tanked against the dollar and euro but the economic ceiling has clearly not fallen in.

Last week in particular was a remarkably good one for the government, starting with the news that the UK economy grew by 0.5 percent in the three months after the referendum, and then getting better with the agreement struck between business minister Greg Clark and Nissan executives that the carmaker would assemble two new models at its Sunderland plant in north-east England, protecting over 30,000 existing jobs and potentially creating more.

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This wasn’t supposed to happen, at least, if you believed the warnings of David Cameron, the Treasury and the economic establishment – labelled Project Fear by their opponents - ahead of the referendum in June. According to their predictions, the UK should be in the middle of a serious slump by now.

Nissan’s decision is a hugely symbolic success for Theresa May. Despite being a heartland of Labour supporters, Sunderland’s voters delivered a huge majority for leaving the EU, ignoring dire warnings that they would be voting for their own unemployment.

Nissan staying suggests that they won’t pay for Brexit with their jobs and is a perfect riposte to Project Fear. The government, in turn, hopes that will Nissan encourage other companies to follow suit.

Sweetheart deal

The government has given written assurances that Nissan's business will not suffer from Brexit and face tariffs even if the UK is forced out of the EU’s customs area, although it appears that the UK will seek tariff-free access for the car industry. Reading between the lines, this suggests that the UK is at the very least promising selective access to the single market.

The car sector in effect has the government where it wants it, with a promise of single market access and a favour to call in if anything goes wrong. So important is the car industry that, for the moment, neither "hard Brexit" supporters nor opposition parties dare criticise the Nissan "sweetheart" deal too vigorously.

A similarly careful balancing act has been taken with Mark Carney, the highly prized Canadian governor of the Bank of England. Carney, who was poached by former finance minister George Osborne, became a hate figure for eurosceptics during the referendum when he warned that a Leave vote "would increase the risk of recession”.

So emboldened are the Leavers that Carney has been taking heat from a number of Conservative MPs for cutting interest rates and increasing the bank’s bond buying programme by £60bn (€68bn) in an attempt to keep consumers spending amidst the uncertainty that followed the referendum result.

Theresa May also appeared to criticise the Bank of England at the Conservative party conference when she complained that “people with savings have found themselves poorer. A change has got to come. And we are going to deliver it.”

At a parliamentary hearing last Tuesday (25 October), Carney took a shellacking from Conservative House of Lords members, who feel that he took an overtly "political" role as part of Project Fear in the referendum campaign. Given a chance, many Conservative MPs would like to give Carney the boot.

Hostage to fortune

The irony is that Carney deserves more credit than the politicians for keeping the economic ship steady in the days following the referendum, when the leading Leave campaigners were too busy knifing each other in their bid to replace Cameron.

In any case, ousting central bank governors for political reasons tends to make financial markets nervous. In a bid to quell rumours that Carney, who has ambitions to go into Canadian politics, would quit the post early, on Monday this week Theresa May backed his decision to serve as governor until 2019.

The dire warnings of economic meltdown by Project Fear were always a massive hostage to fortune. Sensible policy making can always limit the effect of choppy economic waters. But they remain choppy. “There is a low growth prognosis in the US, Europe and the UK,” Carney told parliamentarians last week.

For the moment, however, while the British ship avoids the rocks there’s little reason for Brexit voters to have much buyer’s remorse.

Benjamin Fox, a former reporter for EUobserver, is a consultant with Sovereign Strategy, a London-based PR firm, and a freelance writer

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