The value of the pound has continued to slump as traders react to the rising possibility of a looming no deal Brexit.
A frosty phone call between Boris Johnson and his Irish opposite number Leo Varadkar underlines the problem: the British government has a series of negotiating asks that cannot be achieved via a negotiated Brexit and can only result in no deal. The government has ruled out a customs and regulatory border in the Irish Sea, and ruled out keeping the whole of the United Kingdom in the customs and regulatory border of the United Kingdom – which leaves precisely nothing on the table. Unles Parliament can find a way to force a change of course – which is far from certain – we will leave the European Union without a deal on 31 October.
That the pressure on the pound coincides with the summer holidays means that it will be immediately noticed by holidaymakers, but the more important consequences for the government will be the medium term effects on real-terms wages. While the Brexiteers won the political debate at Westminster about the post-referendum fall in the value of the pound, and it didn’t change anyone’s opinion about the wisdom or otherwise of leaving the European Union, it undid much of the work that wage growth was doing in softening the impact of years of spending cuts.
And while that pressure on wages was only part of what went wrong for the government in the 2017 election, it helped Jeremy Corbyn then in wresting the campaign away from issues that caused Labour pain – Brexit – and towards economics and public spending, areas that Corbyn had a more compelling line to take. Past performance is no guarantee of future success; but if there is an election in September, the pressure on the pound may give Boris Johnson a headache just as it hurt Theresa May.