A tweet from Robert Peston refers to one of the more rapid consequences of Brexit, after the demise of the UK shellfish industry, that is:
This is astonishing. Of course the economic significance of stock exchanges has always been exaggerated. But the idea that Amsterdam’s stock market would eclipse London never felt remotely plausible. Till we chose to leave the EU. pic.twitter.com/z2ydzfUYeb
— Robert Peston (@Peston) February 11, 2021
There was always a chance that Brexit might reduce the status of the City of London, but this change of fortune is happening at a much faster rate than I might have expected. It suggests a number of things.
The first is that very clearly some in the EU had worked out the consequences of Brexit and planned for it. Such a shift due not happen without a plan to create the necessary capacity for it to occur. So, others read and planned for Brexit vastly better than the UK did.
Second, this suggests that the UK's invisible earnings, which arise from the sale of services, are likely to fall as rapidly as those from the export of goods, which we know are in deep trouble. I would also suggest that once shifted recovering lost service sales may become even harder than recovering lost sales of goods: the moment new habits are formed around services they are much harder to break.
Third, there is an obvious consequence to all this, which is to the value of the pound. Invisible exports have, in part, addressed the UK's long running deficit in the trade in goods. The City has played a major role in that, which has at least in part been the basis for its economic power in the country. If those sales are lost, the value of the pound will fall.
Fourth, a long-term fall in the value of the pound, on top of the significant decline since Brexit was decided upon, would have major ramifications. One is an inflation risk peculiar to the UK that MMT could not address because it would relate to a fundamental change in trading relationships. Another would be a significant change in many people's perception of their wellbeing. Some very obvious products, like foreign holidays, will be much more expensive. That is, I suspect, not what people thought they were voting for when they wanted to leave the EU.
And last, for now, is the resulting underlying challenge that this poses. We already know that Brexit is destroying some sectors,such as the trade in shellfish, which was almost entirely export led. Now, if the City declines, one of the narratives of UK economic power will disappear. The impact of Brexit is going to be bigger on the country than anyone really expected. Or maybe I was just naive in hoping that things could not get this bad this quickly. But I was wrong, and it has.
So what does that decline mean? Basically, our reality is that we are set on an unknown, but chosen course. That is one where the option of reduced growth was taken, even if it was not understood. And that course is also associated with relative isolation. We have turned our back, quite deliberately, on cooperation. It will be a long time before we can expect it again.
Although ‘we' here does, of course, refer to England alone. Scotland and Northern Ireland have ways out of this mess. Even Wales might, but it will take longer. But for England, what does a period of chosen decline in status, earnings and consequent national confidence, mean? Because it seems that is, inevitably, the immediate issue that it faces.
The answer is, of course, unpredictable. But it will involve creating a new national narrative. Brexit has not and cannot, deliver that narrative. There is no enemy, despite its story, around which to build this new alternative by delivering unity in opposition. There will, ultimately, only be the realisation that this was a plan of choice.
The only viable narrative in that case is one that embraces the difference, and the other opportunities of this moment. England could pioneer a Green New Deal. It could adopt MMT as the explanation for policy. It could appreciate that when it has excluded itself from markets by choice it must as an alternative think about bigger government. It could recognise that financial capitalism, where reward is skimmed from others, has ceased to be an option when others will no longer accept those terms. It could transform, in other words into a post financially industrialised state .
But that requires an almost absent vision of a new England. And it takes time. And that is not on England's side. And yet what is clear is that very rapidly the question will need to cease to be ‘what have we done?' and become instead ‘what can we do about it?' I do not, however, see any real sign of this as yet. And that is worrying.
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The UK trade figures have since the mid 1980’s been the elephant in the room. The UK trade balance started to go negative around 1985 and overall have become relentlessly worse each year since (apparently the spike in 2019 was caused primarily by a one-off trade in precious metals / gold). North Sea oil reduced the rate of decline for a number of years but the fundamental truth of a 35 year economic decline are plain to see.
https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/timeseries/hbop/pnbp
https://theconversation.com/gold-distortions-the-artificial-driver-of-uk-economic-statistics-132390
A useful article here explains some details –
Does a current account deficit matter?
Should we worry if the UK has a current account deficit?
Yes, we should worry
It is a sign of uncompetitiveness, which will lead to lower economic growth and poorer prospects in the long run.
If capital / financial flows dry up, it could lead to depreciation in the exchange rate and a fall in living standards
It is a sign of an unbalanced economy.
https://www.economicshelp.org/blog/5776/trade/uk-balance-of-payments/
I find it hard to believe, that despite the proven criminality of Vote Leave, the Brexiteer’s now in government have not had charges laid against them.
I’ll never forgive the Tories for removing Scots EU citizenship against our will.
Charter Cities for the world’s unscrupulous manufacturers (who I suspect will be getting first dibs on any available electricity too) coupled with Singapore-on-Thames for them to hide away the loot they make from undercutting all responsible manufacturing environments. There, sorted.
I DO agree that Brexit is damaging for the Financial sector but I don’t think it is wise to invest too much near-term significance in the shift in share trading to Amsterdam. Very few jobs and very little revenue will have shifted out of the UK as an immediate result. The danger of overplaying things is that when, in a year’s time the sky has not fallen in, the Brexiteers will cry “see, it is all fine”.
Of course, it is not fine. When office leases expire or staff are being hired there is now, at the margin, a reason to shunt Amsterdam up the list and London down the list of preferred locations…. but this will take time to play out. It will end not with a bang but a 10 year whimper.
I admire your effort to move on from “what have we done?” – but on a frosty morning in February I can quite muster your enthusiasm.
I promise you, I am trying to mister that enthusiasm…but it’s not always easy
Muster or Master, Mister? The topic is still vitally important.
The answer of what to do is simple, in fact we have an oven ready solution. Rejoin.
Great idea but after all that has happened in the last five years, can anyone honestly believe they’d have us back?
I find it hard to be optimistic about the country’s future. What can you say about a country that’s been in the grip of a magic cult where most people believe or rather assume the nation’s money (medium of exchange) just “pops” into existence? Truly the Magic Money Tree Cult!
Having said this human beings are capable of of fairly rapid u-turns. China is a good example where Mao’s imposition of dead-hand state capitalism and enforced farming cooperatives (30 million dead from a famine) was rejected and private enterprise re-introduced together with a clear understanding that the nation’s money was a collective or rather mutual money creation process.
Interestingly the Chinese leadership that took over from Mao took the trouble to find out from Western economists just exactly how they believed their private enterprise and monetary systems worked. They picked out what they thought were the best and most logical ideas and applied them. The country is now prospering but shamefully still a police-state.
England in the 17th century picked itself up from the mess the Stuart kings and Western European countries were making with their obsessive addiction to a specie based monetary system and came up with the Industrial Revolution. This provides a gleam of hope the people of this island can innovate their way out of the current mess!
As a full paid up member of the Magic Money Tree Cult, I feel I must respond to Helen Schofields post.
1) HMG can print as much money as they like, ergo, finding money to pay for stuff is never a problem. You can argue about inflation and available deployable resources but finding the money, per se, is simply a non-issue.
2) The Chinese are not operating “Capitalism”. They are using Shimomuran-Wernerian economics which was invented in China, taken to Japan, forgotten in China & brought back to China by the Japanese.
It is a form of state Socialism where the state provides the necessary funding for private & publicly owned industry by shaking the magic money tree.
“Shimomuran economics not only ends any need for “abstinence” and “austerity” which imposes suffering on the people in the nation imposed from the political heights, but it ends the intellectual confusion experienced by many economists between investment and consumption, because it ends the intellectual seesaw between investment and consumption. It is no longer necessary to cut consumption to increase investment or vice versa. Economics is no longer a static intellectual zero sum game in which gains in investment can only be made by reducing consumption, and vice versa. Consumption can continually increase as investment credit continually provides the funds for the new investments. There is an investment-providing money tree located in the central bank of all nations which still have control of their currency. Many badly-advised Western politicians supported by wrong-headed economists have said that isn’t so, but it certainly is.”
The Chinese and Japanese growth miracles are very much not due to Western capitalism. If you want to see that in operation look at the mess India is getting itself into.
Mr Logan,
The quote is from George Tait Edwards? Glad you raised the matter, but the texts are difficult for readers to access in lockdown, or ridiculously expensive online (eg., Werner’s ‘New Paradigm on Macroeconomics’ as a way into Shimomura).
On the invention of Shimomura economics in China, are you referring to the 1930s Mantetsu? Was that not the Manchukuo puppet state, which was certainly a rather unhappy end to the Quing dynasty in Manchuria, or have I lost the thread somewhere? For the importance of Shimomura economics in China, I would be interested in any links/sources you can offer between Shimomura economics and Deng Xiaoping and his reforms?
I’m very hopeful that Scotland will indeed take a route out of this entirely predictable chaos. Even although that happens, I’m afraid that we will still suffer the consequences of Brexit for many years to come.
The last time the English and Welsh got booted out of Europe was circa 1440 — when the English normans lost most of their French empire. The French quite rightly being tired of having English terrorists (for that is what they were) roaming the land.
The French “exit” then led to the English aristos ably abetted by English peasants tearing themselves apart for 40 odd years. The reasoning being if you can’t kill French peasants, let’s kill each other. Henry VII then gradually rebuilding a weak, poor country (with his son blowing most of it away).
The current crop of politicos are incapable of organising a piss-up in a brewery. Like the Bourbons, they have learnt nothing and forgotten nothing and every day this reality is demonstrated by ALL political (hawk —spit) parties. There is the possibility that they will attempt a GND but it will lack money, commitment etc and they will, inevitably, get the funding all wrong. A sample of “getting it wrong” being the recent off-shore Round 4 sale of seabed “organised” (I use the word loosely) by the Crown Estate. Stupid prices and much criticism of a lack of forward pipeline (i.e. there are too few auctions planned). Those that can, look to other more interesting locations to develop and the Danes have off-shore ambitions that match the English and a will to implement them (unlike the English).
In the case of the LSE, over the last 40 odd years I have watched as the number of quoted companies shrank. There is very little left that is worth investing in, bit of oil & gas, some miners and some pharma and not forgetting the merchants of death led by Brit Aerospace or whatever they call themselves now. I still use a London-based broker, but in common with the others of that type, they have offices in Dublin etc which facilitates trades in non-LSE-based shares. Buy shares in UK-based companies? — you must be joking.
As for “creating a new national narrative”, given the dire straits that England is in, political actions (as reported in this blog & elsewhere) seem to be focused on supressing political dissent e.g. the work of Mr Halfcock & his crew. This coupled to the likes of Sir Stalin donning Union-Jack underpants (I’m talking figuratively) suggests English politics in stasis/ mired in a sea of mendacity and mediocrity.
The Brexiteers have got almost every forecast wrong.
It has cost us well over £150 billion.
Polls have consistently, over three years, shown a majority against it.
So why is the media so quiet? I would suggest they played a huge part in bringing this about.
We need courageous politicians to speak out.
Without being too much of a Cassandra I would suggest that much of this was foreseable. Of the 28 UK businesses I have worked with over the past 4 years, 22 are up and running in mainland Europe with separate supply chains wherever possible. Result? Loss of employment and tax revenue in UK. The motto “Go West young man” needs to be replaced by “Go East young man”.
Andrew Bailey, Governor of the BofE keeps insisting that the EU is trying to dictate to the UK, sounding more and more like a Brexiteer – bizarrely, before Brexit:
“Mr Bailey said EU demands had so far been unreasonable. ‘I’m afraid a world in which the EU dictates and determines which rules and standards we have in the UK isn’t going to work,’ the governor said in his annual Mansion House speech to the City, this year held virtually. ‘Is the EU going to cut the UK off from itself? There are signs of an intention to do so at the moment but I think that would be a mistake,’ he added. ‘We have to state the argument for global standards and markets and openness and if we all sign up to that then there’s no need to go in that direction.'” (BBC News website today)
“Is the EU going to cut the UK off from itself?” Is there something I do not understand here, or is there something Mr Bailey really does not understand (or can’t afford to admit); because prima facie, Mr Bailey’s choice of words suggests to me that he seems to believe that the EU establishing the rules it applies to financial trading with the EU, is in fact the EU interfering with the sovereign rights of Britain to trade with EU as it pleases. It leads me to the extraordinary thought that even Mr Bailey does not understand Brexit (or dare not admit its consequences).
This is all too close to Brexit before Brexit: the easiest deal in history. We can have Brexit, and our cake, and eat it. We can have the single market for nothing; and through NI we can be in and out of the EU at the same time. We are also free to undermine the EU politically from the outside, at no cost.
When will the UK or rUK apply to rejoin the EU?
Within ten years is my guess.
I may not be right on this, but I think we should ask Kate Hoey what we can do about it.
I’ve just read Peter Oborne’s ‘The Assault on Truth’ and it neatly collects as many lies as possible from our errant PM jus so that we do not forget. Oborne says however, that with 175 pages there is not enough room for all of Johnson’s lies.
Apparently Oborne is a going to send a copy of his ‘dossier’ to The Speaker on the basis that Johnson and his ministers/advisors have broken every Parliamentary rule in the book.
That is how we have got where we are today.
The only way forward now is for the lies to be addressed in my view. Yes – it is time Johnson was impeached.
So who watches over the conduct of Government and ministers? Who watches those who watch over us? The Nolan Committee? Who?
Whoever they are, they’d better start doing their bloody job.
Captain, our Captain – where the bloody hell are you? Where’s our backstop to tyranny?
I would finish tonight barring the fact that I am doing an SNP local meeting….
It’s good, not very long and a document of record
I hope the SNP meeting went well – that they were ‘receptive’.
It was fun
The Brexiteers far right ideology based on arrogance, xenophobia and animosity towards a non English speaking bloc is costing them dearly. This brutal ideology is definitely incompatible with business and prosperity. It is based on bitchiness, pettiness and a total negligence. They have not learnt lessons from history and Charles De Gaules warned about the UK being serious trouble for Europe and we are witnessing it now. The Brexiteers did this to themselves because they chose to leave the biggest trading bloc in the world, hoping and gambling they would still keep the same benefits because they are special VIPs. They are still blaming the EU for everything that goes wrong, with the help of the media that is reporting nothing about Brexit bad consequences in the headlines. It is very odd indeed about what is currently happening to the UK and no one seems capable nor has the courage to rescue it. It makes you feel these people are deliberately destroying the UK for some unknown reasons. Isolationism and far right ideology are definitely going to screw up the UK’s economy just like Trump did unless something miraculous happens.