As so often down the centuries, Europe is blowing itself up again Jeremy Warner
https://www.telegraph.co.uk/business/2019/09/29/often-centuries-europe-blowing/
Last week I wrote about political uncertainty as the new normal for the economy and financial markets. It seems that there is a growing body of opinion at the Bank of England that agrees.
In a speech, Michael Saunders, an external member of the Bank’s Monetary Policy Committee, said that UK interest rates may need to fall further regardless of what happens over Brexit, such is the likely seemingly never-ending uncertainty created by its political fallout.
This runs contrary to the official line, which is that even in the event of a no deal Brexit, interest rates may have to rise to deal with the inflationary consequences of any shock to output capacity.
Very few people believe this is actually what would happen in practice, and now along comes Mr Saunders to say, indeed; the economy is already slowing precipitously, so we may need to cut whatever happens over Brexit.
I’ve given up trying to figure out where we’ll end up on this journey. Almost any prediction is rendered redundant within a few hours by the unfathomable politics of the UK’s predicament.
Last week’s Supreme Court judgement seems to make the chances of a deal, already quite slim, vanishingly improbable.
But even if there is one, it’s not going to end the uncertainty, or the now dangerously destructive effect of Brexit on business investment. For any deal will cover only the transition. There would then follow talks on the future relationship, setting the country up for a series of cliff edges.
The same goes for a no deal Brexit, which might be thought the final closure but in truth would offer no clarity at all. The UK’s future trade relationship with the EU would remain deeply uncertain.
“Persistent rolling uncertainty is likely to be especially damaging”, says Saunders. “Firms keep expecting Brexit related uncertainties to be resolved fairly soon – hence providing a temptation to defer major spending until the situation is clearer – only to find that the situation is just as uncertain a few months later, so they defer spending again and again”.
With interest rates already so low, further cuts will do very little to counter these negatives. More effective would be fiscal stimulus, but judging by the Office for Budget Responsibility’s latest analysis, there is virtually no room left for this within the current fiscal mandate. A stagnant economy is already reversing recent improvements in the public finances.
The situation scarcely looks any better across the Channel, where the present standoff with Britain is threatening to plunge the entire Continent into recession. Wherever the blame lies, Europe is once again blowing itself up, as on so many occasions down the centuries.
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