One of the enduring political storms over recent months has been whether parliament in the UK should see the 58 sectoral analysis reports that evaluate the likely effects of Brexit on key sectors of the UK economy. Who, but an utter fool, would embark on a revolutionary change in Britain’s trading relationship with its largest trading partner without fully understanding the risks and benefits, right?
The government, mainly in the shape of the minister for exiting the EU, David Davis, had argued (with some reason) that to release these reports for general consumption could weaken the UK’s bargaining position with the EU by identifying critical needs to them. However, what he said in the period following the referendum result is very edifying (source: David Allen Green’s Blog).
The need to examine the Brexit impact on various sectors was stated to a parliamentary committee in July 2016. Davis told a Lords committee in September 2016 that: “We will carry out some of our own, yes; that’s right. The example I cited earlier is people comparing the effect of tariffs and nontariff barriers. How do you assess that? How big are the problems? Where are they?” He went on: “they are working through about 50 cross-cutting sectors—what is going to happen to them, what the problems of those industrial groups are, and so on. That is both them and in liaison with other Departments. Some of them are setting up an engagement strategy.” The minister stated that this exercise would be completed before Article 50 was triggered (March 2017). He lied.
In evidence given to the Commons Select Committee on Brexit yesterday, Davis admitted “There is no systematic impact assessment”. The justification for this startling news was: “I am not a fan of economic models because they have all proven wrong when you have a paradigm change.” Arguing that the government is seeking a comprehensive trade deal he opined: “the usefulness of impact assessments would be near zero”.
The upshot of all this is that the UK government has no detailed idea of what the effect of leaving the EU under the various scenarios (soft, hard or no deal Brexit) will be. Now there’s a comforting thought. How much more damaging to the UK negotiating position will it be that the UK has done no proper evaluation of the economic consequences of Brexit in its various shades?
From a Forex fundamentals perspective, it means that if no deal is arrived at, or only a very limited trade deal can be agreed, the Pound is likely to go into free-fall against other major currencies. Financial analysts and Forex traders will be taking this into account for Sterling futures which will be extremely sensitive to UK political developments going forward.