Consciousness of Sheep
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When it comes to political legacies, David Cameron’s is already in tatters… and things about to get a lot worse. Although most of the Remain Campaign’s warnings about the imminent appearance of Conquest, War, Famine, and Death following the June 23 vote did not materialise, the UK economy is clearly shaken. In Tory circles, blaming what comes next on Brexit in general and Cameron in particular is seen as essential.
Like Gordon Brown before her, the next prime minister is going to be the unfortunate who is sat in the hot seat when the proverbial hits the fan. So the narrative they will want to construct says that while they did not want to leave the EU, they respect the people’s decision to do so, and must now try to deal with the economic mess that Cameron allowed the people to bring upon themselves.
There is, however, an alternative and more credible narrative. This is that the policies that the Tory government have implemented since 2010 are coming home to roost. The UK banking system remains the ticking time bomb that it was in 2008 – too many too big to fail banks with too few resources to keep them alive; coupled to an economy that has been anaemic in all of the fundamentals. To turn George Osborne’s words back on him – he failed to mend the roof even as the storm clouds were gathering.
The start of 2016 saw a decline in consumer spending as the New Year sales failed to boost growth. This was followed in the Spring by a crash in manufacturing and a slowdown in the service sector. A historically high and growing current account (aka balance of payments) deficit was already threatening the value of the pound before the referendum had even been called. As if this wasn’t bad enough, a key indicator of the onset of a recession – a construction sector slowdown – also appeared in the Spring. And the best that can be said of the slowdown is it may not be quite as bad as 2008. As Will Martin in Business Insider notes:
“The big thing that is going unnoticed however, is that even pre-Brexit, the UK economy looked to be heading in the wrong direction. Sure some of that pre-referendum slowdown could be put down to jitters about the result, but that goes only some way to explaining why Britain’s economy simply hasn’t performed in the way it should have.
“When the best you can pull from a dataset is that it is not quite as bad as during the worst recession since the 1930s, you know things are not looking good.”
To make these problems much much worse, the policy options available to central banks in 2008 are no longer available in 2016:
“Things might not be quite so scary if there were any tools left to deal with the impending doom facing the British economy, but we’re pretty much out of ammo. The Bank of England’s base rate is stuck just above zero, and despite the fact that governor Mark Carney hinted last week that the Bank will cut rates further this summer, the prospect of negative rates doesn’t exactly hold much promise.”
The Tory instinct will be to blame the crisis that we already see looming on the horizon on the vote to leave the EU. This will pave the way for even more failed austerity as they seek to punish the poor for the mistakes of the rich. However, it is these failed policies that have helped get us to this point. Whatever George Osborne’s long-term economic plan was supposed to have produced, what it has created is an economy that is weak in all of its fundamentals and strong in just one area – the unsustainable asset bubbles that will be the first to disappear as the economy goes down.
