After the vote there was no recession, as they never tire of saying; but inflation went up and growth slowed and the crucial point was that we were still in the EU, benefiting from frictionless trade.
This time around it’s less Project Hysteria than Project Harsh Reality. We’re properly out.
And lest we forget, supply shocks can wreck havoc. In September 2000’s fuel crisis, hauliers and farmers angered by tax caught the Government on the hop and blockaded refineries. It was a sudden, sharp economic shock which lasted less than a week but reduced economic output by 0.65% on the month. A disorderly no-deal Brexit doesn’t have the surprise element of the fuel protests, but the impact could make them look like a picnic.
Take the Port of Dover, handling 11,000 trucks a day. It accounts for 17% of our goods trade, as the former Brexit Secretary Dominic Raab recently discovered. According to the port, 99% of vehicles come from the EU and take two minutes to check. The rest take 20 minutes. After Brexit, they’re all non-EU and, an extra 1000 customs officers notwithstanding, Kent becomes a lorry park within a matter of days.
EU lorries move around under a “community licence”, but no-deal ends this for EU operators in the UK and vice-versa. The Road Haulage Association, representing a sector already short of drivers, thinks we might have to fall back on an old quota-limited permit system, offering less than 5% of the current licences. I checked this week and the RHA still doesn’t know how their members are going to operate next year. From here shortages look less speculation than inevitable.
Alan McKinnon, a professor at the world’s only logistics university in Hamburg, says suppliers could adjust after the initial hit; but for foodstuffs, an extra day on deliveries adds to transit costs and is likely to mean more items have to be refrigerated, putting up costs.
He also thinks there’s a risk of “stockpiling at a consumer level” and shortages of EU-sourced food (nearly 30% of the UK’s supply) until things settle down, however long that may be. When businesses are run on a just-in-time basis, 20-mile queues of trucks stretching back from Dover are as good as an economic heart attack.
My economist friend crunched the numbers for manufacturers, accounting for 10% of the economy. Nearly 90% of their supplies are imported. Say imports fall by 75% in a no-deal shock scenario, then manufacturing output falls by two thirds. Charitably assume they manage to substitute half of the missing imports with domestic parts, helped by some stockpiling: you still have a one-third fall.
Broadly that leaves manufacturers knocking 3% off the economy on their own in a no-deal Brexit disruption of uncertain length. Even if it lasts one quarter, that’s a £15 billion hit, nearly twice as much as the UK’s £8.9 billion net EU contribution last year.
And we’ve barely covered the businesses being forced to hold more stocks, cutting profits and reducing investment while a falling pound, shortages and those WTO tariffs drive up inflation. Households retrench, and banks faced with market chaos tighten up on credit. The Bank of England threatens rate hikes to defend sterling as the UK heads into recession.
Truly, it doesn’t sound like a walk in the park, Suella. Yet still we wait for our political class to stop dancing on the edge of the abyss. Remember: 17 weeks and one day.
