Brexit – two months on

Two months on from Brexit, what can be appraised? Even though the extrication process will take years, with article 50 still yet to be implemented, changes have already made themselves felt. I advocated for Brexit but admitted that there may be economic difficulties facing this proposition. Though I think the economic argument is much the less important one compared to sovereignty, it is the strongest one the Remain side has. I advocate engaging the strongest argument of your opposition. Hence let’s have a look at the economy of the UK with the latest data hot off the press.

I believed that the economic argument to be the chief and most creditable one hoisted by the Remain side. It was argued, with some credible reasons and backed by the majority of economists and major banks and the policy and regulatory bodies such as BlackRock, Barclay and the Bank of America, that Brexit would lead to a catastrophic drop in the economy, there would be a recession, and the Eurozone will take a body blow.

As the old joke goes, for every economist, you can always find an equal and opposite economist; and they are both wrong. At the end of August, the first hard data came in on the state of the economy of the UK after Brexit, which should have embarrassed a lot of seasoned economists, bankers and finger waging politicians. This points to a major problem before the vote – which is that most economists, and politicians for that matter, were so wedded to staying in the EU that they couldn’t imagine anything other than fire and brimstone if the UK were to leave. In point of fact, not all economists are hopeless, for example Bernard Connolly, one of a handful of economists, along with Mark Carney, who correctly foresaw the financial crisis in 2008. As such, his views on the EU and Brexit might be worth hearing.

Even the Remain-leaning, Europhile Guardian has to grudgingly admit that the economy in the UK is unaccountably sunny (latest summary from the Guardian as of 5/9/16 here), their own gloomy prophecies notwithstanding. After Brexit, Grocery price has been tumbling – The British Retail Consortium give figures of 0.8% fall in July and a further 1.1% drop in August. Non-food items have dropped even more, with a total of 4.7% over the same two months. This equated to spending going up, with the Office of National Statistics reporting retail sales rising 1.4% in the month of July which was 5.9% higher than the same month in 2015, with all sectors showing growth. The amount spent (value) in the retail industry increased by 3.6% compared to the same month last year and was a 1.6% improvement with June, 2016.

Reflecting this, the Purchasing Manager’s Index (PMI) for the service sector, a dominant sector in the UK including everything from restaurants to banks, bounced to 52.9 from 47.4 in July; wildly defying economists’ forecast of 50 (above 50 meaning growth) and more than making up for the drop caused by uncertainty after Brexit. To put it in perspective, the 5.5 point gain was the largest month-on-month gain observed in the 20-year history of the IHS Markit survey. The manufacturing sector PMI experienced great expansion to 53.3 in August – a 10-months high. Overall PMI was jumped from 47.6 in July to 53.6 in August. Furthermore, the number of people claiming out-of-work benefits fell in July by 8,600, suggesting a robust market.  In short, two months on, the most potent of the Remain side arguments have proven wrong. Not surprisingly, the spirit of the British is high, with a recent poll showing two thirds of 8,000 people polled believing that Britain is on the right track after Brexit. This includes a third of Remain voters.

Manufacturing PMI

Looking into the future, Australian Prime Minister has already taken the opportunity at G20 to solidify his approaches in July towards the overtures of a free trade agreement with Britain. President Xi of China has indicated likewise. Other countries like the US (in spite of Obama's 'back of the queue' remarks), India, Canada, South Korea and Mexico have all been keen to begin negotiations and even offer experts in negotiating trade deals to aid the process. It is important to point out that the EU, only 16% of the world’s market (less when the UK leaves), does not have free trade deals with any of these powerhouse countries other than Korea, which it only managed to ratify a deal with in 2011 after many years of inefficient negotiations and the deal only came in force in 2015. In Europe, Switzerland, Iceland, Greenland, Norway and the Faroe Islands have invited the UK to join the non-EU European Free Trade Area (EFTA). Despite the almost threatening tones before the vote, Germany has made many advances towards trade deals with the UK, with the pressure from politicians such as the German Finance Minister as well as German industry giants. The French Foreign Minister Michel Sapin also said that there will 'be no red lines' in the negotiations with the UK, contrary to Donald Tusk's words. More contrasts with what people said and what they are doing now: pro-remainer pharmaceutical giants GlaxoSmithKline invested 275 million pounds post Brexit, and AstraZeneca invested 330 million pounds. Wells Fargo, the US banking giant, agreed to spend 300 million pounds in purchasing its European headquaters in London. Compare what people were saying before the vote, and see what they are doing now. The leave vote seemed to have opened more doors than ever before.

Something worth noting is this: the centralised, protectivist, inward looking, undemocratic and bureaucracy-ridden system of the EU is what has forced the UK to leave it. After decades and many failed attempts to ‘reform it from within’, as many of the more sensible Remain side advocates were arguing, facing up to the obvious flaws of the EU, many have finally realised that reform is not on the table. One such is Michael Howard, former opposition leader and mentor to David Cameron, whose change of view, having voted the UK to join the ECC in the 70’s, is adumbrated here, and is worth reading for its historical and political insight especially for those who still hold hope for a rehabilitated EU. Now the UK can, like Daniel Hannan put it, be a 'good neighbour, instead of a squabbling tenant', cooperating and trading with Europe and be free to do so with the rest of the world while making its own laws as seen fit by its own citizens.

Secondly, the EU is not Europe. To confuse EU for Europe is like confusing FIFA for football. Leaving the EU does not mean UK is turning its back to Europe. It is simply a stand to assert that the people of Britain have exercised their sovereign rights to decide for themselves how they would like to be governed through their own elected officials via a democratic process and not by a supra-national, cryptic, intransigent and undemocratic bureaucracy that’s one step away from being an oligarchy and is marching headlong in that direction - the EU. Any bipartisan would have to agree that the EU is doing its utmost to elide any sense of national identity by pushing forward towards a federation of Europe. It is, I repeat, undemocratic, schismatic, protectionist and short sighted. It favours and panders corporatism and elitism and is responsible for much unhappiness and hardship of millions of working class people in many European countries and for the stagnation of the European economy. Brexit might be the bugle call that wakes Europe up from its dismal decline.