The Autumn Statement forecasts tell a story of economic failure
Remember the Marmite crisis? A few weeks ago leaving the EU had led to Britain’s favourite (or least favourite) spread being lost to consumers. So keen were we for evidence of the negative impact of EU exit that this squabble between a monopoly supplier and a monopoly buyer became a story about the EU.
The prime minister’s hard tone on leaving the EU caused the pound to fall causing import prices to rise and promising soaring inflation. Marmite was off the virtual shelves.
Now we have the Office of Budget Responsibility forecast on inflation.
I CPI inflation
They predict that inflation will soar to a peak of 2.6 per cent next year. In other words, CPI will go from one percentage point below the government’s target to 0.6 of a percentage point above before falling back to the target. That is not the bad news we were expecting.
The OBR does not dispute that the pound has fallen. A trade weighted index has sterling down almost 30 per cent compared with 2007, but actually only a little lower than the period 2009-2013.
II Sterling effective exchange rate assumption
The lesson we should draw from this is that commentators are so focussed on the aftermath of the vote that every piece of economic news is fitted into a post referendum narrative. Psychologists call it confirmation bias. Commentators see what they expect to see and what they expect to see is an economic impact from EU exit.
EU exit is distorting our understanding of developments in the economy. One issue with this distortion is that we lose focus on the questions that matter. Leaving the EU will slow the economy, but that is not the whole story.
Another problem is that it lets the government off the hook for its failures. Leaving the EU could become the all-purpose alibi for Tory incompetence.
Labour front benchers like Clive Lewis and Rebecca Long Bailey, did a good job challenging this narrative following the Autumn Statement. They pointed out that EU exit accounts for only half the increase in government borrowing. The other half represents government’s own failings.
III Sources of changes to public sector net borrowing since March
This last chart is copied from the OBR presentation on their report. It illustrates the changes made to their GDP forecasts in November compared to the pre-referendum forecast in March. It shows a clear slowdown in the rate of growth in 2017 and 2018 compared with their earlier expectations.
IVAnnual real GDP growth
The most striking fact is not the temporary slowdown in growth but the low level of expected growth overall. Before the financial crisis growth averaged over 2.5 per cent. Even before the impact of leaving the EU was taken into account the OBR foresaw slow growth continuing up to 2020.
There is another story being told in the OBR figures. It is one of inadequate investment and a stagnating economy. Minor changes in government policies announced yesterday do nothing to improve the country’s prospects.
There is a story about the impact of leaving the EU but the narrative which emphasises the effects of EU exit risks masking other fundamental problems.
The tale of productivity, living standards, investment and inequality still needs to be told.
Jos Gallacher represents Labour International on the National Policy Forum of the Labour Party
See also: With the Autumn Statement, the Tories’ Great Lie has finally been exposed
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7 Responses to “Brexit cannot become an all-purpose alibi for Tory incompetence”
Mike Stallard
If we just apply Article 50, leave the “Single Market” and rely on the “WTO Option” (as the Gambia and Zimbabwe do) then, believe me, we are in for an economic disaster which will surprise you.
We must remain in the European Economic Area to preserve jobs, the NHS, the welfare state and to protect the vulnerable.
Jos Gallacher
Thanks for your comment Mike. What is your evidence for an economic disaster?
To me a disaster would imply something at least on the scale of the 2008 – 2009 recession and its aftermath. None of the reputable analyses produced before the referendum suggested that anything on that scale was likely.
Most predict some loss to potential GDP over the long run. Clearly we would be better off remaining in the EU and if that is not possible then I favour staying in the customs union.
The short term problem we face is a lack of demand which needs to addressed by increasing investment and raising wages. Blaming everything on EU exit makes it harder to make the case for what needs to be done.
GodfreyR
More Project Fear lies and false news.
Tony Weston
The tories are economically incompetentThey have destroyed the country by needless austerity….. yet, they cant change their policies or u-turn or risk looking the credibility argument.
brexit was perfect for them. they can now blame Brexit for having to spend more….when it was their own policies that have meant UK earning increases have matched that of greece.
Brexit News for Monday 28th November | BrexitCentral
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