Invest, Devolve, Liberate
A New Economic Policy in the Light of Brexit
It is often said that 1945 and 1979 mark crucial turning points in the political and economic history of the UK. In the future, it may well be said that 2016 was another such moment. When the result of the UK referendum on membership of the EU became clear in the early hours of June 23rd 2016 it triggered the resignation of David Cameron who had campaigned to remain. After Theresa May was appointed Conservative leader and Prime Minister on 13th July, a new government took office tasked with implementing Britain’s exit from the EU. In the space of weeks three party leaders either stepped down or were challenged for the leadership. The economic policies of the last six years hang in the balance.
However, despite all the political turmoil and predictions of calamity, the performance of the economy since the vote has been mostly steady, rosy even. The short-term falls in the stock market have been reversed, while the housing market is stable if slowing, so far. Consumer confidence has been robust and retail sales healthy. Business investment, against expectations, rose in August, and economic growth was a healthy 0.5% in the third quarter. However, the initial 13% fall in the pound has not been reversed and is now feeding into higher business costs. May’s speech at the Conservative Party conference triggered a sharp sell-off in the pound, now down a further 4% against the dollar since early October. Gilt yields have also risen in response to fears of the implications of a ‘hard Brexit’. The economy is forecast to slow dramatically over the next year. The IMF has cut its growth forecasts for the UK by 0. 9% for 2017, and warned that the vote has thrown a ‘spanner in the works’ for global growth.
Meanwhile the Bank of England has cut interest rates to 0.25% and restarted quantitative easing in a bid to head-off any economic downturn while Phillip Hammond, the new Chancellor, is preparing an Autumn Statement to steady nerves and lay the foundations for future economic policy. Now that Jeremy Corbyn has been re-elected, Labour too will be attempting to formulate a coherent economic alternative to present to the public.
The time is surely ripe for a new economic policy for the UK. But what sort of economic policy is suitable in the context of Brexit? To answer this, we first need to understand the economic performance of the UK economy and the likely implications of Brexit.
This report aims to address the question of how domestic economic policy should respond to the long-term economic challenges the UK faces in the light of our intention to the leave the European Union. It does not attempt to tackle the complex issues of what we should aim to achieve from the Brexit negotiations or how they should be conducted. Instead it focuses on what we know about the long-term economic challenges facing the UK and how Brexit is likely to impact them. Lastly it suggests policy reforms which should help remedy these challenges and prepare us for life outside the EU.