The pound reacted to yesterday’s surprise news of a June election with a notable rise, which implies a softer or more gentle form of Brexit.
Sterling’s performance since the referendum is perfectly logical given the general impression the Government has given leading up to the triggering of Article 50.
The Prime Minister, her Cabinet and advisers have given a pretty clear message that a harder form of Brexit will occur, focusing on reducing net immigration, and — in order to do so — on leaving the single market.
A Conservative majority in June would give her more freedom to negotiate a longer transition period. If she does not revert to this softer approach, sterling’s strength will peter out again.
Some Brexiteers quite passionately believe that the UK can thrive outside the EU, and in certain circumstances, that might be true.
But unless the Government gets more serious, and focused on genuine UK economic challenges rather than the politics of the Conservative Party, it is wishful thinking.
As big a challenge as Brexit is, I do not believe it is the biggest facing the UK. Indeed, on days of ridiculous hope, I can persuade myself that some good can come of it, if it jolts the Government out of its tactical, politically inspired approach, and sees it get more serious about our big challenges, and the steps we must take to boost productivity. So what are those big challenges?
There are many, but the key ones for me are the ongoing low level of basic educational achievement in many parts of the country; a separate lack of skills, low wages for many, remarkable geographic economic and wealth inequality, similarly remarkable intergenerational inequality, and a very naïve approach to international trade relationships.
With respect to the apparent desire to abandon the single market, it seems obvious that if this restricts the UK from accessing the world’s most skilled people, then this will further negatively influence productivity.
It is relevant for many industries and of course, for our universities, which arguably for a country of our size, might be regarded as at the highest levels in the world.
Similarly, persisting with inclusion of students in the immigration targets makes no economic sense whatsoever (nor from what I can see from occasional polls on the topic, does it make sense for the politics either). We should be wanting even more to attract — and retain — these talented young people.
With respect to our geographic inequality, it is remarkable how little this Government makes reference to the Northern Powerhouse (NP), a policy I joined the previous leadership to help deliver.
From what I can tell, this is because it is associated so strongly with that previous regime, and despite its obvious initial success, appeal and importance, it is tolerated but not embraced.
One of the strongest aspects of the positive approach to the NP is that private business became more and more attracted to getting involved, simply because they believed the Government was committed.
This buy-in was a real force in itself, as it reduced the need for inappropriate Government spending. The Government should rise above its internal party politics on this and other matters.
Downing Street also needs to be focusing a huge amount of attention on improving trade — and investment — with those economies which are likely to be more and more important to global commerce in the future.
This leadership inherited a “golden relationship” with China from its predecessor, and it should be trying to fully explore that, rather than allowing itself to be all sentimental about the Commonwealth, except where those individual countries can offer something that is likely to make a material difference to our economic future.
What if the Tories don’t win the election? Presumably, it would only happen if the Labour Party get their act in order, align with the Liberal Democrats, and win on the basis of reversing the Brexit vote.
In the unlikely event that this would occur, I suspect, we would see a sharp recovery of the pound. But it would still need more sharp economic policy focus on the issues I highlight.
Lord O’Neill is the former UK Treasury Commercial Secretary
