Cloud of uncertainty over Brexit dampening UK economy, Chancellor admits

How little movement there has been on the Brexit negotiations was confirmed in chancellor Philip Hammond’s revealing evidence to the Treasury select committee this morning (11 October).

Saying that a “cloud of uncertainty” over Brexit was acting as a “temporary damper” on the UK economy, he admitted that both businesses and consumers were waiting to see the direction of travel in negotiations before firming up their investment and consumption decisions.

His comments come as a report warned that a hard Brexit could cost key manufacturing sectors £17bn a year.

Accepting that employers need certainty, both in terms of the length and nature of the proposed transition period after March 2019 and the long-term relationship with the European Union, in order that they “avoid worse case scenario planning” – potential relocation, with the loss of thousands of UK jobs – before they need to, the chancellor said that, “astonishingly”, talks had not yet begun on the latter.

Talks on the transition period were also yet to commence, even though such an arrangement was a “wasting asset” as time passed.

“It has a value today, it will still have a very high value at Christmas and early in the New Year, but as we move through 2018 its value to everybody will diminish significantly,” the chancellor said.

In blaming Britain’s EU partners for the failure to discuss these key issues and for imposing the structure of negotiations, he went on to warn that the UK had to prepare for the possibility of no deal and a “bad-tempered breakdown” in relations with the EU.

“If it is a World Trade Organisation (WTO) regime with no deal, there are then two further potential levels that you have to consider. One is no deal, WTO, but a friendly agreement that we are not going to reach a deal but we will work together to cooperate to make things run as smoothly as possible.

“But, bluntly, we also have to consider the possibility of a bad-tempered breakdown in negotiations where we have non-cooperation, and, worst-case scenario, even a situation where people are not necessarily acting in their own economic self-interest. So we need to prepare for a wide range of scenarios.”

Worst case scenarios included no air traffic moving between the UK and the EU on exit day, and the EU not being able to share customs data with Britain.