The political pressure is mounting on Boris Johnson to abandon the idea of no-deal, but as the economy walks towards a recession, the British prime minister is trying to built up the economic viability of the “do-or-die” project.
On Thursday, Johnson underscored that he would “rather be dead in a ditch” than ask for a Brexit delay beyond October 31st. He did not specify whether he would resign rather than ask for a delay, as he may be required by parliament. But he did reiterate a call for an early election, which requires the support of the opposition and that is not forthcoming. The House of Commons rejected Johnson’s plan for a snap election on Wednesday. The only chance for Johnson to regain the political initiative is if Conservative Leavers in the House of Lords manage to filibuster the bill demanding a Brexit prolongation.
Meanwhile, Johnson had to face the embarrassing resignation of his younger brother. Jo Johnson submitted his resignation on Wednesday both as a minister and as a member of parliament, citing “national interest” and the fact that he did not see eye-to-eye with his brother over Europe. This came one day after the prime minister expelled from the party 21 “rebel” backbenchers, including three former Chancellors who oppose no-deal.
There are two challenges ahead of an inevitable election. First to consolidate the Leave vote and, secondly, to create a viable economic narrative for a post-Brexit UK.
Johnson has burned all bridges with liberals. The Conservatives can now only hope to gain seats in England, looking strictly at Leave strongholds. To do so, Johnson is underscoring the perceived danger of a socialist government under Jeremy Corbyn and is trying to consolidate the Leave vote under a single party banner. Brexit Party leader Nigel Farage has warned Johnson that he needs to stand with the Brexit party – that secured a 28% share of the vote in European Elections – rather than against it. But he is demanding a pre-electoral pact.
As regards to the economic narrative of a post-Brexit UK, the US government reiterated its support for Brexit on Thursday with Vice President Mike Pence underscoring Washington’s support for Britain’s decision to leave the EU. He reiterated a commitment to a trade deal as soon as possible.
On Friday Johnson goes to Scotland to announce an additional £51,4m funding package for Scottish farmers to fund the transition from the EU’s Common Agricultural Policy payments, over and beyond the £160m already pledged.
The budget presented on Wednesday by Chancellor Sajid Javid is striving to bolster the narrative of post-Brexit economic resilience across the board.
Like all major European economies – Spain, Italy, France, Germany, and the Netherlands – the UK’s budget presented on Wednesday envisages a deficit-driven stimulus, designed to whether a global economic slowdown and address the additional hurdle of a no-deal Brexit and the possible collapse of exports.
The ardent Thatcherite Chancellor and former Deutsche Bank man, Javid claimed the government was “turning the page on austerity” on Wednesday. The Conservative plan is to hike spending by 4,1% of the UK’s GDP which, according to the Institute of Fiscal Studies, would reverse two-thirds of fiscal consolidation measures taken since 2010.
In 2010, the UK had a 10% deficit, which is now reduced to 1%. David Cameron’s Conservative-Liberal coalition not only introduced an ambitious fiscal consolidation program but went on to introduce a “golden rule,” setting a 2% borrowing ceiling in an English-version of ordoliberal economics.
“After a decade of recovery from Labour’s great recession, we are turning the page on austerity,” Javid said.
The first post-Brexit budget would spend generously on austerity-hit services – education, health, social care, and the police – and would be combined with additional spending on infrastructure. That plan goes further than Philip Hammond’s “£30bn by 2024” promise.
Still, according to the Institute of Fiscal Studies, the UK would still spend 3% of GDP less than it did in 2010 and at a much lower cost. 2020 will be the year of further rate cuts from the US to the eurozone and negative bond yields already account for 25% of sovereign bonds issues.
The challenges ahead for the British economy are formidable: the worst-case scenario, according to the Bank of England, is a recession of 5,5%. This projected recession is dealt with an extraordinary budget, unbecoming of fiscal conservatives like Javid, but it appears that is more of a one-off response than a three-year “conversion” to neo-Keynesian economics.