We know these things are true


27 January 2018

So far, January has been something of a phoney war, confined to preliminaries by the Sherpas, no news conferences, and everyone said to be working to a timetable to agree transition by March and a trade deal by September. I’m struggling to buy into this, but I’ve been surprised before.

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The economics have turned out far better than expected: the pound is strong, employment at record levels, government borrowings down, and growth for 2017 ending up ahead of forecasts. On the other hand, expected growth looks less rosy, with forecasts all over the place but generally down. And weak productivity always gives the naysayers something to talk about, in the hope that no-one will notice the maths of its inverse variation with high levels of employment.

Perhaps it is the economics which have prompted something akin to recantation from several high-profile leavers in Davos over the last week. Jim O’Neil, the former Chief Economist at Goldmans, said he was “embarrassed to accept” that he’d been too pessimistic. He was looking at a Cambridge Econometrics report for the Mayor of London that the UK might forgo GDP growth equating to 0.23%pa - what you or I would call a rounding error. The chief executive of Aberdeen Asset Management, Martin Gilbert, admitted that the outlook was set to be “better than people imagine”. Even David Cameron confided to Lakshmi Mittal that leaving was “…not a disaster”. Some, however, remain inveterately gloomy, with Mark Carney speaking of “£200m per week in lost growth”, presumably another rounding error.

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The current wheeze of Remainer diehards is revocation - that the UK might take back its Article 50 notice and that the EU would permit a painless reversion to the status quo ante. This smacks of a call to join Alice’s White Queen and believe six impossible things before breakfast. A cross-party group of MSPs - possibly joined by one or two opposition MPs from Westminster - is seeking a judicial opinion. The notion is that this would be appealed in short order to the ECJ. But the case could fail irrevocably at any point and the European Court may refuse to hear it in time. The political climate on the UK side has been inclement for such a revanche: it is too soon to know if the majority for a second referendum, reported for the first time in an ICM poll today, is a rogue or a straw in the wind. On the EU27 side, matters are contested between different conceptions of a quiet life: those hankering for a no-change outcome weighing in against those favouring a no-drama process.

To return to the real world, the intended transition is becoming reasonably clear as to duration - “twenty-one to twenty-seven months”, says David Davis. It is less so as to regime: the current scheme seems to be remaining within the single market and customs union for the duration. The UK would remain subject to the ECJ in these matters, but relieved of its treaty obligation of “sincere co-operation”, so that it might negotiate (but not conclude) trade agreements with third parties. At Davos, Trump promised something on this score, but who knows how seriously to take him? In addition, “sincere co-operation” cuts both ways: HMG is after a new “good faith” commitment from the EU27 during transition, to forebear from new rules which are detrimental to the UK.

The intended end-state remains contested. The economic big guns of the CBI and the City continue to push for the status quo. This has little political traction as, in a rare show of spirit, May has made it clear that she has little time for either. Nor do such arguments command popular support: big business and finance remain in disrepute, their cheerleaders are disregarded and the strength of the job market soothes fears about employment. In the event and as we expected, the C-suite heroes are hedging their bets by simultaneously planning for no deal.

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The leadership of both major political parties remains gnomic. May mystifies as a former Remainer ostensibly bound to see Leave through, but in such a lacklustre fashion as to give rise to doubts about her commitment. Corbyn stupefies as hamstrung by the rift between his MPs and his voters, the latter themselves pointing one way in the soft South and the other way elsewhere.

Cabinet disagreement is best seen as a source of amusement; otherwise we would succumb to despair. Hammond flies his flag of minimal Brexit, only to be slapped down by a boss still smarting from the self-inflicted weakness which stops her shipping him out. Boris is back on manoeuvres, his most recent foray apparently stillborn, but his instincts and record as a vote-winner troublesome to May and his rivals within and without the party. Even so they have managed to reverse his former honeymoon with the media, which now echoes to the most personal of attacks. Nonetheless, expect more from him and other contenders after May’s supine reshuffle.

To conclude, the main theme so far this year must be May’s astonishing ability to continue to surprise on the downside. Her tin ear and spineless command have put her leadership back on the agenda, with Sir Graham Brady signalling that forty-eight signatures is within sight. That could be disruptive in any number of ways. Meanwhile Germany has yet to form a government (156 days so far), Spain has yet to face up to the revival of separatism in Catalonia and the Visegrad Four (Poland, Hungary, the Czech Republic and Slovakia) are beginning to strut their stuff.