I believe these comments are coming from an informed source:
Let's be clear, all the forecasts from the likes of the Office for Budget Responsibility and Bank of England, have been based on the idea that there would be a Brexit deal and that there would be trade deals as a consequence.
It now seems very likely that those assumptions are wrong. It now seems not only that a Brexit deal is very unlikely but that any trade deals are also unlikely as well, most especially with the USA, but also with many other countries as a result of the proposed UK approach to the EU on Northern Ireland.
Those forecasts from both the Bank and OBR also assume no upturn in Covid 19, and that upturn is now happening, with clear consequences now planned that will slow economic rec0very.
In those two circumstances, there is now no reason to think any of the existing forecasts are likely to represent anything like what will happen.
What would the reasonable assumptions be for new projections be in that case?
First, there will be significant UK domestic price rises as a result of tariffs post Brexit.
Second, even if the UK foregoes tariffs (and it is not clear how) then there will still be significant additional costs on importing that will be passed on to the consumer and that will deliver price increases. This will suppress UK econ9omic growth and destabilise the economy in a way which no domestic counter-measure can address.
Third, there will be substantial impediments put in the way of many UK exports, many of which will have significant detrimental impacts in more vulnerable communities in the UK. This is bound to have an impact on the level of business activity in the UK, which is likely to fall as a result.
And fourth, there is as a result the likelihood that the UK downturn will be much more severe than anyone previously thought likely, and I already thought it was going to be pretty grim.
This results in the very real chance that government deficits will, as a result of the automatic spending multipliers linked to unemployment, be substantially bigger than previously expected.
Will that result in increased tax? Not logically, because that will only make things worse. If Gove does not understand this, that's especially worrying. But the idea that there will be no international willing to support the UK does suggest sterling issues might arise, and that QE will be playing a massive role in funding these deficits.
But what I can say for sure is that we have no clue as to what is going to hit us as yet, but whatever we assume it will probably be worse than we can imagine. There is no win, anywhere, in the current direction of government action (which I dare not call policy, because there is no evidence that it is).
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So MMT could now suggest that you might get an inflationary shock. If Covid + Brexit cause a 20-30% fall in the productive capacity of the economy but the Government (and new PM Rishi after Boris walks the plank) make up the money shortfall of the corporate and citizen sectors to ‘make Brexit a success’, then you could have loads of intended spending confronting a shortage of anything to buy combined with higher import prices due to tariffs and a fall in the pound. That could start to look like a French occupation of the Ruehr type of economic shock. Or am I being extreme? The fact there would still be mass unemployment would not necessarily help given so many goods are imported and even what we make usually needs imported components. The car factories could all be at a standstill as component deliveries are all stuck in French customs. Possibly stagflation, then.
A blog is planned, but the day has not run to plan
There was already hyperinflation by January 1923 – indeed one view is that the invasion was to take goods in kind as currency reparation payments in marks were worthless. So not caused by France.Belgium, merely made e’en worse
Strange isnt it that when there was a prospect of a Corbyn Government that we were promised a complete trail of wanton destruction, yet here it is, delivered by those who said Corbyn would do the same thing
Failed State Status anybody?
So, this must be why Cummings wants complete freedom to support corporations from the bank of England. I honestly think we are heading for an authoritarian nightmare not far removed to Germany 1935. Every warning was made 10 years ago when the Tories embarked on their boneheaded vindictive austerity plan. What do we do? How to we stop tyranny. I realise my comments always strike you as severely negative, but that come from place of love for my country and the people in it.
People talk about it happening in the US but they always pull themselves back. Britain is a basketcase
I don’t say enough how much I respect your writing here Richard – i really do it’s like a voice of sanity
Move to Scotland?
Well it has crossed my mind seeing as I’m half a Scot and I could move in with my brother! And I do love it there! But the winter winds are extremely cold
Agreed – despite having lived in England for 30 plus years I am seriously thinking of selling up and moving back to Scotland – even if it struggles economically if independent it will still be better than living under the Cummings/Johnson regime !
I may be the chap on the seat opposite
The thing that has never been properly explained, is where exactly is the post brexit growth going to come from?
It has always felt to me, that with businesses pulling out, brain drain, lack of new investment coming in, no EU immigration, importers/exporters not coping with transition, the fall out of border chaos, probably declining tourism… we will be in permanent recession.
I can’t understand how you can go all through that, and still have growth.
And this was my feeling *before* covid19.
(PS. many don’t consider tolhurst a good source, but that is an aside)
I think he is on this issue
The ‘growth’ will come from our new friends – the Americans, a few others plus companies who are in EU countries but sense opportunities externally in the ‘new wild west’ that will be the UK.
And the Tories will be the handmaidens – no doubt creaming off as much of it as they can for themselves.
The Sterling crisis seems to be on the way already…
So MMT could now suggest that you might get an inflationary shock. If Covid + Brexit cause a 20-30% fall in the productive capacity of the economy but the Government (and new PM Rishi after Boris walks the plank) make up the money shortfall of the corporate and citizen sectors to ‘make Brexit a success’, then you could have loads of intended spending confronting a shortage of anything to buy combined with higher import prices due to tariffs and a fall in the pound. That could start to look like a 1921 French occupation of the Ruehr type of economic shock. Or am I being extreme? The fact there would still be mass unemployment would not necessarily help given so many goods are imported and even what we make usually needs imported components. The car factories could all be at a standstill as component deliveries are all stuck in French customs. Possibly stagflation, then. I think history will be a very very harsh judge of Brexit. Probably at the Nero with his fiddle level .
If there’s a new landscape emerging, shouldn’t we be being asked to vote on how we’re going to address it?
There’s clearly a “Plonker Cult” going on in the country that’s immune to reasoned thought either with Brexit or Covid-19. The only antidote to this cult appears to be massive distress!
Sterling is sharply lower but most traders I know still have the feeling “they can’t be THAT stupid, can they?”. Well, it looks like they can!
My investment portfolio does not look too good….. the boat is looking like the only thing I own with any value!!
So if there is no deal does this mean that Nissan or Toyota cars made here will be subject to 10% tariffs if sold to the EU – and if so will these companies want to stay in Britain ?
I think we all know the answer to that
I doubt that there will be significant higher taxation (except in the odd targeted area) as that doesn’t sit well with have your cake and eat it ideology of the govt. It’s more likely that there will be a combination of tax cuts, (particularly corporation tax) and deficit spending, which is something the American Republican party has practiced for a long time now.
It is pretty clear that the EU will require the UK to stop behaving in bad faith before it progresses negotiations, and I can’t see the government backing down. So we need to go back to our lists of worst case scenarios of a “no deal” Brexit, from the most basic items upwards. What happens to police and security cooperation? Can we sell services to the EU without a deal, particularly the financial services that bring us so much revenue? How long will our exports be delayed by EU import controls? Can our planes fly in European airspace? Etc.
The very idea that the UK would so flagrantly breach its clear obligations under binding treaty with a friend and near neighbour will have repercussions for years. Who is going to want to negotiate with us, and risk us simply deciding to breach the agreement within a year? How can we expect to call any other nation to account for its breach of international law? Suez put paid to the UK’s delusions of hard power and this is killing what remains of our soft power.
Boris Johnson is carving himself a place in history as the Prime Minster who led perhaps the UK’s most incompetent government in history, exacerbated a pandemic, killed the Union, and made the UK an international pariah. Is he even a Conservative and Unionist?
Well it always was obvious that neutralising increased tariffs was going to need the UK government providing tax breaks and/or subsidies which is why the Brexit Plonker Cult is trying to stuff the GFA. The only problem in attempting the latter is that it’s drawn the world’s attention to the fact that the Cult is trying to do a sort of China, fiddle the global trading system to achieve price point in global markets!
If you’re perceptive you’ll understand why the Brexit Plonker Cult has done the world a favour by drawing attention to their dumb behaviour and that MMT must now develop further to push for changes to global trading rules inequity.
Please don’t hesitate if you’re considering emigration….. Scotland is/has always been a welcoming country…..