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26 October 2017

Crazy idea: perhaps the people who think Brexit is a disaster are right

The Brexit elite should at least consider the possibility that the United Kingdom's exit from the European Union will end in tears.

By Stephen Bush

When I was at university, one of my tutors had a habit of making sneering analogies about the premiership of Tony Blair. Our tutorial group had a long-running debate about whether or not this revealed him as a right-winger or a left-winger, in which we tried to marshall clues one way or the other. (I can’t now recall which side of this debate I was on.) Our main objection, though, was that he was teaching the history of the early years of the American republic, and his interjections were eating into our allotted hour.

So it may be a problem if people’s lectures on engineering are being derailed by long digressions on the importance of banks retaining their passporting rights – however, it seems that what is causing some Conservative backbenchers and the Mail palpitations is simply that a majority of academics believe that Brexit is a bad thing and use their time out-of-work to say so. 

Now it may well be that these academics are wrong. We shouldn’t forget that in 1992, shortly after the United Kingdom tumbled out of the Exchange Rate Mechanism, the German discount supermarket chain Lidl opened its first set of British stores.

They believed that Britain’s exit from the ERM would hit wages and jobs, putting their low-cost shops in prime position to make a killing. In the end, “Black Wednesday” turned out to be a positive day in the economic life of Britain: it paved the way for the so called “nice decade” (no inflation, constant expansion).

The economic, political and academic consensus around the UK’s relationship with the ERM turned out to be wrong.

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In 2016, shortly after the United Kingdom voted to leave the European Union, the German discount supermarket chain Lidl announced plans to expand its first set of British stores. They believe that the Brexit vote will hit wages and jobs, putting their low-cost shops in prime position to make a killing.

And as in 1992, the academic, political and economic consensus is that they are right. Every living Prime Minister, from John Major to Theresa May, believes that Brexit is a bad decision. Eighty per cent of academics believe that Brexit is a wrong turn, and there is an overwhelming consensus that the long-term impact will be to make the United Kingdom poorer.

It is, of course, possible that Brexit will turn out to be Black Wednesday over again, and that once again, Lidl will have planned an expansion for an opportunity that never came.

It is worth noting, however, that this time, the economic indicators are pointing in the opposite direction. Sixteen months after Black Wednesday, economic growth was higher than it had been when the United Kingdom was in the ERM. Sixteen months after Britain voted to leave the European Union, growth is slower than at any point since 2011. The fall in the value of sterling has been good news for businesses that sell to the rest of the European Union but has been bad news for British households, which were in any case over-leveraged even before the Brexit vote. And the British economy has gone from growing faster than the European average to the laggard of the developed world.

It is worth noting that as the UK hasn’t left yet, it may be that the unexpected gains of Brexit have yet to materialise while the economy is instead suffering from the expectation that it will be bad. The possibility that Brexit may be Black Wednesday Mark II is real, albeit one that has to be heavily caveated.

However, the economic indicators are all sufficiently gloomy that no one who believes Brexit will be a success can say with any certainty that people who believe it won’t be are wrong, let alone start claiming that they have been brainwashed by pro-EU academics.