Dear Subscribers,
This week sees the release of a major report by Briefings co-editor Graham Gudgin and regular contributor Harry Western. Together with economist Julian Jessop, they’ve exhaustively analysed the impact Brexit has had on the UK economy. The report is a major piece of work, and we encourage you to check it out – even if you don’t read it in full there’s a succinct executive summary that will fill you in on the key details.
Setting the Record Straight
In brief, the authors find little evidence that Brexit has harmed the UK. Growth, investment, currency prices and exports have all largely followed trend patterns. Nor have Britain’s European neighbours outperformed – since June 2016 and up until the end of the second quarter of 2022, OECD data shows that the cumulative growth rate of real GDP in Italy was 4%, in Germany was 5.5%, in the U.K. was 6.8% and in France was 7.6%. That is significant, because it underscores how little hard economic evidence there is for the Rejoiner case – which will doubtless be made in the coming years.
Last week the Trade Committee of the EU Parliament voted 75 to zero in favour of a new bill allowing the Commission to impose sanctions on the UK if the UK moves to overturn the Northern Ireland Protocol. This is the threat of a trade war that worries many Tories and if PM Truss is replaced will become of prime importance. Together with the resignation of the chancellor, and the appointment of Jeremy Hunt in his place to roll back Truss and Kwarteng’s flagship policies, the Prime Minister’s days seem numbered.
Amid this turmoil, it’s easy to lose track of other important news stories. As the Chinese Communist Party Conference opens today, it’s timely to examine the concerning growth of Confucius Institutes across the UK. Funded directly by the Chinese government, these programmes partner with UK universities, often focused on sensitive areas of technological development or business networking.
As Confucius himself said, fine words and an insinuating appearance are seldom associated with true virtue
Three more industry-related stories. The UK news has largely missed the scale of the energy crisis currently engulfing Germany, where large sections of industry face severe cost pressures. President Biden’s administration implemented a ban on Americans working in the Chinese semi-conductor industry, which is likely to have severe effects. Finally, the Centre for Economic and Budgetary Reform has published an analysis of the cost of banning fossil-fuel vehicles, which it claims will cost vastly more than the mooted economic benefits.
Reports
What Impact is Brexit having on the UK Economy?, by Graham Gudgin, Julian Jessop and Harry Western
In this major report on the impact of Brexit using the latest data, the three authors examine a wide range of economic indicators including, GDP, trade, investment, inflation and employment. Their conclusion is that there is no hard evidence that Brexit has had a negative impact on the UK economy.
“A careful reading of the evidence shows that while there is little evidence yet that Brexit is doing much to help the UK economy, neither is there evidence of much harm. This is significant because it was generally agreed, even by Brexiteers, that there would be initial difficulties.”
Blogs
The Tide flowing against Russia, by Adrian Hill
The tide of events in Ukraine no longer flows one way. After inflicting a significant defeat on the Russian army to the east of Kharkiv, the Ukrainians gained more ground along the west bank of the Dnipro River and drew closer to the city of Kherson. In recent days they have attacked a bridge over the river with the aim of trapping the Russians on the western bank.
“Katerina Buchholz of the Kiel Institute for the World Economy and Statista put the Brits second only to the Americans and France tenth, behind Estonia with a tiny population. Actually, Katerina’s numbers show that British aid is almost as the same as the EU put together and the smaller counties are more generous than the big ones.”
The conundrum of the European Political Community, by John Keiger
What is behind President Macron’s latest idea of an EPC? A bridge-building exercise? A sop to states queuing to join the EU? A means to lasso the UK into the Brussels orbit pending a return to the EU fold? The vision of a ‘two-speed Europe’ has been around in Paris for generations. The UK must not give away its key asset, its defence and security strength, and must ensure its relationship with its neighbours is on its own terms.
“The UK should not be seduced too easily into committing to the European Political Community’s security dimension – thereby playing its trump card – without first securing substantial guaranteed returns in kind.”
Key Points
Amid the torrent of criticism of the UK economy this week, plenty of it has been ill-informed. Readers may have seen criticisms by the IMF of the British government’s financial plans. The frequency and intensity of these criticisms is unusual, given the Fund’s relative silence regarding other economies’ stimulus plans, and the relative health of Britain’s comparative balance sheet and higher growth prospects.
An answer may lie in the Fund’s leadership. Its head, Kristalina Georgieva, is a former vice-president of the European Commission, and was appointed to IMF despite being older than normally allowed after French pressure. Further, in her previous job at the World Bank, she pressured employees to inflate Chinese economic performance data. This record suggests that the IMF under her watch is hardly likely to be friendly to an independent UK, or have qualms about spinning the evidence.
The Institute for Fiscal Studies also put out a dire report, claiming that Britain would face having to borrow £80 billion more by 2026-27 if Kwasi Kwarteng’s mini-budget was implemented. As the Institute only passingly acknowledged, however, this forecast was based on pessimistic assumptions about growth – where even the IMF has forecast that Kwarteng’s measures how have boosted GDP.
By contrast, economist Patrick Minford has warned that continuing with Rishi Sunak’s tax rises risks a deeper recession, shrinking tax receipts and further government debt. Notably, Hunt’s announcements seem to have had little calming effect on the bond market. 10-year gilt yields have increased to 4.3%, scarcely short of their peak of 4.4% under Kwarteng. This suggests that the extent of the Bank of England’s support package for pension funds, rather than the government’s fiscal plans, is what’s really determining rates.
Finally, and most bizarre are the remarks of Mark Carney, the former governor of the Bank of England. Carney compared the UK and German economies by value on Twitter, suggesting that the UK had lost much of its GDP by value since 2016. Carney’s comparison is spurious – comparing the size of the economies by their nominal GDPs, priced in their own currency, leaves the measurement entirely dependent on currency price volatility.
As economist Julian Jessop pointed out, using the more reliable method of Purchasing Power Parity (PPP), UK GDP has been stable compared to Germany’s since the referendum. Our own recent report bears this out using OECD data. Yet these criticisms are all too familiar. As the authors of our Impact of Brexit Report put it, given the anti-Brexit bias of many in the economics profession “it is perhaps not surprising that at least some of these observers are keen that their pessimistic predictions should be borne out and are willing to stretch arguments to breaking point in order to claim that they are.”
We are also on Twitter, posting articles and retweeting the daily events that bring Brexit to the fore in the national news.
Discussion also continues over on Facebook.
How you can help
There is much about Britain’s relationship with Europe that remains to be decided. Our MPs listen to their constituents. Do continue to send them links to our articles, especially on matters relevant to your constituency – for example, in rural areas, articles on the threat to British agriculture. Alternatively, make an appointment to speak to them at their next surgery. Let them know what you want post-Brexit Britain to look like.
As Boris Johnson said in in his post-election address, it is also time for unity and reconciliation. Keep reading our posts and share links to our quality content to help others understand how leaving the EU benefits the UK economy and our own democratic governance. We aim to educate our critics to think differently and more positively about the long-term impact of Brexit.
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Yours Sincerely,
Newsletter Editor
A Cambridge PhD Student
Economist, Centre for Business Research, Judge Business School University of Cambridge
Emeritus Professor of French History, University of Cambridge
