A hard Brexit is looking less and less likely.
Tony Ward (pictured) is chief executive of Clayton Euro Risk
A week may be a long time in politics but it must have felt like a lifetime to Theresa May. Was it only seven days ago I suggested that all was not going well for the Conservative’s election campaign? Now, post-election, it was putting it mildly.
I wrote that any political indecision or paralysis post-result would damage the economy. Well, look what happened and where we are now. Not in good place. And it’s not going to improve rapidly with such great uncertainty over the effectiveness of Mrs May’s minority government.
So, who are the winners? At the moment, nobody in the UK as far as I can see. The prospect of a hung parliament saw the value of sterling sink initially on Friday. Shares in housebuilding, restaurants, high street banks, fashion retailers and media outlets all took a big hit. While some made a reasonable recovery by day’s end, be prepared for increased volatility next week.
And yet there may be some sort of consolation – at least to my mind. A hard Brexit is looking less and less likely. Former-Chancellor-turned-editor George Osborne said he did not believe there is now a majority in the Commons for a ‘hard Brexit’, after the loss of so many Tory seats. Mr Osborne, referring to the Scottish Conservatives leader, told Andrew Marr that “if the Ruth Davidsons of the world are starting to flex their muscles, then in my view that's a good thing”.
In the wake of the general election, Ms Davidson said: “We must in my view, seek to deliver an open Brexit, not a closed one, which puts out country’s economic growth first.” Panmure Gordon & Co. market commentator David Buik said the inconclusive result “will require an immediate response to settle for a much softer Brexit”. The DUP campaigned for Brexit, but wants a common travel area between the UK and Ireland and no hard border with the Republic, the UK's only land border with the EU, so would seem to support this.
So, things are possibly set to change. I agree with other business leaders that Theresa May’s mantra ‘no deal is better than a bad deal’ is now well and truly dead. “This result was a vote against hard Brexit” said one FTSE 100 chairman.
Regular readers of my blog will know that I favour a ‘soft Brexit’. Remaining in the EU’s single market offers the best outcome for trade, a transition period to ensure businesses have enough time to adapt to working practices plus protection of The City of London and our financial institutions. Well, in one week from now – June 19 – the negotiations finally begin so we will see where we are then. But negotiations of any sort won’t be easy. One can only suppose that the ‘EU 27’ are rubbing their hands with glee at the election fallout. It has been suggested that the mood in Brussels is sceptical and derisive, so things could be tricky indeed.
Our first priority must be to rebuild our confidence, which has taken a huge hit. All business groups, including the CBI, British Chambers of Commerce and the Institute of Directors, have been keen to stress that uncertainty is the worst outcome for their members, who are struggling to come to terms with what shape the new hung parliament will take. CBI director general Carolyn Fairbairn warned: “The priority must be for politicians to get their house in order and form a functioning government, reassure the markets and protect our resilient economy. Politicians must act responsibly, putting the interests of the country first and showing the world that the UK remains a safe destination for business. It's time to put the economy back to the top of the agenda.” I couldn’t agree more.
Recent economic indicators are starting to look decidedly dodgy with growth in consumer spending slowing. Furthermore, the Organisation for Economic Co-operation and Development (OECD) warned last week that the Brexit negotiations will weigh heavily on the economy, producing a surreal situation in which the global economy is growing from 3% growth last year to 3.5% this and 3.6% next, at the same time as the UK is slowing, down from 1.8% last year to 1.6% this and just 1% during 2018. Warning signs aplenty, which we must not ignore. To reiterate the message I wrote in the run up to last year’s EU referendum, let’s have a decisive approach from government and clarity in its vision.
Adam Marshall, director-general of the British Chambers of Commerce, put it all rather succinctly: “I’m tired of the rhetoric around Brexit. My members want answers to real issues. Who am I allowed to hire? Will my goods get help up in customs? We need to start dealing with some of these issues.”
Hear, hear.
