How Johnson could play the politics of an economic contraction

Yesterday, another of the Brexit Wars’ endless fronts opened up as both sides tried to put their spin on the news that the British economy shrank in the last quarter.

On the one side, Remainers keen to jump on anything which bolsters their view that our departure from the European Union will bring about severe economic disruption. Arrayed against them are Brexiteers who argue that this is either unrelated to Brexit or at least in part due to the previous administration’s botched efforts to get Britain out.

Who is right? On one level, it scarcely matters. Both sides are sufficiently entrenched by this point that it is difficult to imagine the voter who is politically-engaged enough to register a 0.2 per cent contraction and yet sufficiently agnostic on Brexit for it to swing them one way or the other.

For what it’s worth, experts such as Ed Conway of Sky News and Rupert Harrison, until recently chair of the UK Council of Economic Advisers, seem sceptical that yesterday’s figures were the lip of a precipice. Instead, they both seem to expect the economy to grow again in the third quarter (Q3), with the Q2 dip a result of the unwinding of companies’ No Deal planning, which inflated the Q1 figures.

Moreover, the publishing schedule for this economic data means we won’t even find out if the UK has entered a so-called “technical recession”, i.e. two consecutive quarters of contraction, until after October 31.

Of course, this doesn’t necessarily mean that the Government is out of the woods – Conway says that the numbers will be a “challenge” for Sajid Javid to explain, and the Prime Minister won’t want press speculation about economic bad news undercutting his attempt to rejuvenate the Government, and indeed the country, with his new, optimistic style. The UK is also exposed if trading partners on the Continent run into difficulty.

However, there may nonetheless be a few political opportunities in the story.

First, Britain continues to outperform its principle EU rivals, such as France and Germany, on a range of measures, and raising this story with ministers will offer them more opportunities to hammer home this message.

Second, speculation about a recession might lend Boris Johnson more political cover for his clearly-signalled intention to turn on the spending taps. What might once have looked like vulgar pre-election bribes can now be recast, or at least spun, as prudent investments to bolster the economy at a crucial moment. Handy, if you anticipate an imminent election.

Finally, it can bolster the Prime Minister’s push for a decisive resolution on Brexit. Some commentators have noted that certainty around the exit date, even including the possibility of a no-deal exit, is preferable to many businesses than running their stockpiles up and down whilst the Government prevaricates. There is now something to point to which illustrates the economic risks of kicking the can.

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