CABINET SPLITS ABOUT BREXIT

The papers are full of talk of a split in cabinet between those who want a hard Brexit and others, a majority apparently, led by Phillip Hammond who think that retaining tariff free access to the single market is a red line issue.  A meeting of the cabinet is taking place at Chequers today where the basic approach is being thrashed out.

The Telegraph on Sunday claimed that we will keep access to the single market for financial services and the car industry but we will be able to curb immigration (HERE).  This is exactly the kind of cherry picking that EU leaders have repeatedly warned against with the German Economics minister Sigmar Gabriel only this weekend (HERE) saying, “If we organise Brexit in the wrong way, then we’ll be in deep trouble, so now we need to make sure that we don’t allow Britain to keep the nice things, so to speak, related to Europe while taking no responsibility,” 

I would be amazed if the EU allow us access for financial services while giving us the right to exclude people we don't want.  An opinion piece in The guardian says the EU are going to make sure Brexit hurts (HERE).

The Independent (HERE) is reporting a major US hedge fund is investing in property in Germany, Ireland, France and Holland.  As usual it's the money that talks.

HOW PAUL MASON SEES IT

Paul Mason the former Newsnight economics editor and prominent left winger has written a thoughtful piece in The Guardian (HERE) about how the cabinet is split and also how the EU might "shaft" us as he puts it.

He says we should ask for EEA membership with some sort of time-limited control on immigration as the only concession demanded and make a statement in Parliament that rules out the UK leaving the single market. This would at least allow our car and financial services sector to continue producing the exports and tax revenues we need.  He says:

"May wants to serve a full term. But both logic and principle dictate that were she to give in to the “clean break” brigade within the cabinet, she would have to schedule an election and fight for a mandate to lead Britain into this particularly stupid form of economic suicide".

I think he may be right. If a majority of the cabinet think the loss of the single market access must be avoided at all costs, they may choose to resign and with a small majority an election may be the only answer and then - who knows what might happen?

CALAIS CAMP LOOKS INCREASINGLY PROBLEMATIC

Both candidates in next year's French presidential election have voiced concerns about the migrant camp in Calais and have proposed renegotiating the agreement. Nicholas Sarkozy has suggested the camp should be relocated to the UK (HERE) and (HERE).

Brexiteers seem to think this isn't going to happen but I would bet on it.  Why would France put themselves through the kind of thing that is happening around Calais when we have just snubbed the EU project that is so close to their heart?  I don't think we can expect much fraternity in future.

ANDREW SENTANCE SAYS STOP OBSESSING

Andrew Sentance the former member of the BoE monetary policy committee says we need to stop obsessing about short term economic effects (HERE).  The Brexit driven impacts on our economy will take a long time to feed through and it will take decades for the full effects to be seen.

This is I think probably the wisest intervention since June 23rd.

GOD SAYS BREXIT WILL TAKE YEARS AND YEARS AND MAY NEVER HAPPEN

Gus O'Donnel, also known as god says in the FT that Brexit will take years and years (HERE) to finally extricate ourselves from the EU and by the time it happens they may have arrived at a looser arrangement that the UK is happy with and we may decide not to leave anyway.

He suggests we will probably leave most EU based laws the same so joining would be relatively straightforward.

Another article that I read this week suggested it may not be until 2035 that we actually have a finished agreement and all the dust has settled so Mr O'Donnel may well be right.

The BBC has also run a piece (HERE) trying to explain how difficult Brexit is going to be and using as a basis for the story an article from the Centre for European Reform that this blog covered a couple of weeks ago (HERE).

FARAGE ATTENDS TRUMP RALLY

Nigel Farage has attended a Donald Trump rally in the US (HERE) and apparently told the audience that he wouldn't vote for Hilary Clinton if you paid him.  I don't think that should surprise us.

He also said Obama's intervention in the Brexit campaign didn't help David Cameron. Let us hope Farage's intervention on behalf of Trump has the same effect on Trump's campaign.

Him and Trump look like two cranks together on the same platform.

An article in the Guardian by Lucia Graves (HERE) says they are both playing the same game using bigotry and nationalism.  I think it also has more than a tinge of racism.  Someone said recently that the UK was becoming like Germany in the thirties with all of the nation's problems blamed on ethnic minorities or now the EU.  A UN report (HERE) blames UK politicians (Farage mainly I think) for a spike in hate crimes in the UK after the vote.

Farage is like Trump a demolisher, not a builder. It takes real intellectual strength to build something but just hate and anger to destroy it and that is all they have.

CAR PRODUCTION UP IN JULY

The British car industry (or the car industry based in Britain) had its twelfth month of consecutive growth with production up 7.6% in July compared with 2015.  Year to date production grew 12.3% to 1,023.723 according to the BBC (HERE).

However, Stuart Apperley of Lloyds Bank Commercial Banking says that consumer demand for cars is "cooling".  Until we have a clearer picture of what our relationship with Europe is going to be we have no idea what damage will be done to the UK car industry by Brexit.

INFRASTRUCTURE SPENDING FALLS 20%

The Independent say infrastructure spending fell 23% in July compared to June and to July 2015 (HERE). 

Michael Dall, lead economist at Barbour ABI, said that the economic uncertainty following UK’s vote to leave the EU could be discouraging investors from spending on infrastructure projects.

“In the first full month since the vote to leave the European Union, the value of construction projects reaching contract award stage declined in July. This is unsurprising given the uncertainty in the economy,” Dall said.

I am not sure one month's figures show anything at all and they may rebound or even increase if the government decides a fiscal stimulus is needed in the way of public contracts.  But cancelling Hinckley Point may have the opposite effect.

THE POUND RECOVERS SOME LOST GROUND

Bloomberg (HERE) are reporting the pound hit a 3-week high yesterday, recovering some of the post Brexit vote losses as it got to about $1.325.  This was on the back of data showing export orders had posted their highest for two years, attributed to the earlier fall in sterling.

However, Bloomberg point out that it is still 11% down and the worst performer of the major currencies.

I think we can expect this. The economic hits will take time to impact us but we will almost certainly see the results next year and thereafter.

TEBBIT WORRIED ABOUT ANTI-BREXIT FORCES

Norman Tebbit has written an article for The Telegraph (HERE) warning that the "vast" forces of  the anti-brexit elite are regrouping.  I assume he means as opposed to the pro-brexit elite of which he is a prominent member.

One half suspects that Mr Tebbit and many others who seem concerned that Brexit is not going to happen are worried that people will not be able to recognise the bright, prosperous sunlit uplands that Brexiteers have promised and perhaps mistake it for an economic calamity. Surely once the £350m per week is flooding into the NHS and our balance of payments deficit turns into an embarrassingly large surplus through the myriad trade deals we will soon be signing, everyone will see the benefits?  Or perhaps he is worried that the scales will drop from leavers eyes?

AFTER BREXIT WE COULD BE - SOUTH KOREA?

A writer in The Guardian thinks we should emulate South Korea after Brexit (HERE). He holds the south Asian country up as an example for us to follow. It has a 50 million population and a land area of 100, 000 sq km - close to our 65 million and 130,000 sq km apparently. Unfortunately, it has a GDP about half of ours and an income per capita about 60% of the UK's.

I agree there are some thing about South Korea we could emulate - the industrial performance is excellent and they have many world class companies like Samsung and Hyundai  - chaebols or industrial conglomerates - that we might want to copy.  However, the writer doesn't explain why it's necessary to leave the EU to do it.

EU rules prevent state aid it's true but South Korea's success in the last half century or so is down to more than state aid alone.  There is no EU directive preventing us emulating Germany but we can't manage it.

As a follow up to this story, a letter in The Guardian (at the end of these letters HERE) by Troy Stangarone who is Senior Director at congressional affairs and trade, Korea Economic Institute, says South Korea is trying to emulate us, and if the writer (Christian Spurrier) "wants South Korea to be the model for the post-Brexit UK, perhaps he needs only to look to the pre-Brexit UK for the way forward".

EU SUMMIT OF BIG THREE - EXCLUDING UK

There is a summit this week in Ventotene, Italy where the first manifesto for a United Europe was drawn up at the end of the second world war by two Italian intellectuals (how I wish we still had some of them), Ernesto Rossi and Altiero Spinelli while imprisoned by the fascists.  The meeting is symbolic for two reasons, the location and the fact that there will only be three largest EU members Germany, France and Italy. We will be absent.

Buzzfeed report it HERE while the Guardian's take is HERE.

Buzzfeed say Europe is already moving on from Brexit and I think this sums it up for me.  They have given up on the UK and who can blame them.  

IDS URGES LEAVING AS SOON AS POSSIBLE

IDS is at it again (HERE). He wants the negotiations to start as soon as possible and by early next year at the latest.  I assume it all looks easy from the outside, especially if you believe, as he does, that we should leave the single market.  The moment of decision for Mrs May is coming soon.  Does she give in to the anti-Europeans like IDS and risk huge damage to our economy or allow The City and industry to continue in the single market as they would like. This might destroy the Conservative party.

LEAVING MORE EXPENSIVE THAN STAYING?

Christopher Booker at The Telegraph is suggesting that leaving could actually cost more than remaining in the EU (HERE), based on the net contribution at £12.9 Bn and the amount we have now confirmed we will continue to pay for farm subsidies, regional funding and research, plus £2 Bn we pay to 27 EU agencies that he says would cost us more to provide ourselves.

On top of this £11.2 Bn, he claims we owe the EU £5 Bn per year for spending commitments we are already signed up to until 2027.  So, overall we will be considerably worse off - at least until 2027 and this is without taking account of any economic hit.

BREXIT BOOM CLAIMS THE TELEGRAPH

The Telegraph has an article (HERE) based on five graphs which "show" we have "escaped an economic apocalypse".  This is two months after the vote and before we have even started the negotiation about what Brexit will actually mean.  I don't know what the writer was expecting on June 24th - a full scale economic meltdown with David Cameron declaring a state of emergency?

If all the engines of a Boeing 747 suddenly fail, it doesn't immediately plummet earthwards.  But if your fellow passenger tells you after a minute or two that all will be well, it doesn't mean he's right. Sooner or later you are going to hit the ground.

The same newspaper is joyfully reporting (HERE) the some economists are now forecasting a slight rosier outlook for 2016 and 2017 - but the increases are for 1.6% this year (up from 1.5%) and 0.7% next year (up from 0.5%).  The Brexit boom!!

BANKS STILL HOPE FOR FULL EU ACCESS AFTER BREXIT

According to Bloomberg (HERE), reports that banks in The City have given up hope of remaining in the single market are untrue and they still hope for a positive outcome.

"The banking sector unequivocally wants to maintain the current level of full access to the EU market, to ensure that businesses and customers across Europe can still be served by U.K.-based banks," British Bankers’ Association Chief Executive Officer Anthony Browne said in a statement.

Mr Browne makes the distinction between access and membership and seems to think we will remain in the EEA - but this means freedom of movement of people and for many leave voters this is a red line. Mrs May still has to square this circle.

WE MUST WAIT FOR ARMAGEDDON

The Guardian in the interests of balance presumably have given space for someone to claim that because what they call economic arnageddon hasn't happened (yet) everything is OK (HERE).  No one ever claimed armageddon would happen at all - just that we would be poorer than we otherwise would be.

The writer says it was project fear that has caused the problem or "put the wind up business" as he puts it resulting in a chilling of the economic outlook.  Now he says the government is engaged in project everything-is-ok to restore order.  He admits the UK has deep structural problems in or our of the EU but seems to think we should risk a big economic shock to cure them!

He claims Brexit has helped to make the government focus on these underlying problems but erecting barriers between yourself and the largest, richest market in the world does not seem a cure for anything. He voted leave because the EU is a failed project - but aren't all projects failures - until they succeed?

GIBRALTAR FACES EXISTENTIAL THREAT

The Independent are reporting the Chief Minister of Gibraltar saying it faces and existential threat if there is a hard Brexit (HERE) meaning if the UK negotiates a complete separation from the EU.