As if we didn’t know already, last week we got another reminder of the economic disaster that Brexit is shaping up to be: Retail sales weakened in the UK, as price rises eat into consumers’ purchasing power.
Britain’s relationship with the European Union is becoming so fraught that even one of the most moderate members of government finds it hard nowadays to use the right words when talking about it.
The excitement that had been building up before the Florence speech of UK Prime Minister Theresa May is quickly turning into disappointment. Many had expected the Prime Minister to find a way to unblock the stalled negotiations over Brexit, but the speech, as delivered, was far from achieving that.
The Bank of England has reason to pat itself on the back. During the financial crisis of 2007-2009, things could have taken a very ugly turn if it hadn’t cut interest rates to record lows and hadn’t started printing money.
A recent article in Politico says that some European Union policymakers believe that Brexit negotiations are so chaotic on the British side because of a cunning plot to swamp the EU with well-prepared, profoundly thought-out position papers at the last minute.
“Having seen the movie ‘Dunkirk’ over the weekend, history might suggest that the British could turn disaster and disorganization around,” it quotes an European official as saying.
The Bank of England will publish its inflation report next Thursday, and this time it will get even more attention than usual.
Brexit is being felt in prices more and more now, with the cost of grocery bills jumping and prices for essentials going up. The phenomenon of “shrinkflation” is in full swing as well; many products are mysteriously losing weight, but maintain their price.
No matter how much it would like to help (or to meet its inflation target), the Bank of England cannot do anything to prevent prices from rising. In fact, to be more accurate, it could, but it will not. The central bank could raise interest rates, stopping the pound’s depreciation — but if it does this, the housing market would crash.
What a spectacular lesson the first half of the year delivered for investors. At the beginning of the year, it looked like the UK’s vote to leave the European Union was a great idea: the eurozone seemed on the brink of disintegration.
The early UK election highlights the harm done by the Brexit vote, but also its short-term winner: the Conservative party. Hidden for now is the long-term loser: the British people.