Brexit: EU heaps pressure on Theresa May ahead of crunch talks with warning over sinking British economy

The European Commission has said that the UK's economy will slump because of Brexit and it will be even worse if there is a messy withdrawal

Joe Watts@JoeWatts_,Ben Chu@Benchu_
Thursday 08 November 2018 19:10
What does a no-deal Brexit mean?

Brussels has released data showing it expects Britain to have the weakest growth in the EU over the next two years, heaping pressure on Theresa May as she seeks their agreement for a Brexit deal.

European Commission officials warned that the UK’s economy will slump even if Brexit is smooth, while a disordered withdrawal would pull the country’s forecasts down even more severely.

The move to highlight the dire consequences of a messy Brexit come just as British negotiators try to convince their counterparts in Brussels that they are ready to strike both a withdrawal deal and come to an agreement on a future relationship.

But the prime minister is also now under intense pressure from her own ministers – ahead of a crunch cabinet expected on Monday – and her DUP partners in government not to concede too much in negotiations.

With talks both in London and Brussels reaching the critical moment, one EU commissioner suggested a deal was unlikely to be signed off by the bloc’s leaders until December, leaving little time for it to be approved before Christmas by the House of Commons.

In its autumn projections the commission estimated that UK growth this year will come in at just 1.3 per cent, down from 1.7 per cent in 2017.

It expects growth in 2019, the year in which Britain is due to leave the EU, to slump to 1.2 per cent, with the same again in 2020.

No country in the EU except Italy, in a standoff with Brussels over its finances, is projected to have weaker growth in 2019 – but in 2020 the UK’s projected performance is the worst of the bloc’s current 28 states.

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The UK forecasts are also worse than those made by the Office for Budget Responsibility, which in last week’s Budget projected growth in 2019 of 1.6 per cent, followed by 1.4 per cent in 2020.

The commission also stressed that its downbeat outlook was based on a “benign” scenario of UK trade with the rest of the European Union continuing uninterrupted.

It said consumer confidence surveys suggested weak spending by households, adding that Brexit uncertainty was likely to keep business investment “subdued”.

It expects net trade to continue to drag on UK growth and sees the UK unemployment rate rising to 4.7 per cent by 2020, up from 4 per cent today.

The commission also projected eurozone growth to slow between 2018 and 2020, due to rising global uncertainty, Donald Trump’s trade wars and higher international oil prices.

But the implication for Brexit and what will happen if it is disordered was clear, with a separate official EU document previewing a council meeting on Monday stating that parts of the withdrawal agreement still “require further negotiation, particularly to avoid a hard border” in Ireland.

Negotiators have been deadlocked over what happens to the Irish border if a new trading relationship has not yet been agreed by the UK and EU by the end of the transition period in December 2020.

That decision can’t be subcontracted to somebody else – that needs to be an issue for a sovereign British government to be able to determine

Dr Liam Fox, international trade secretary

Under these circumstances Brussels wants at least Northern Ireland to remain in the EU’s customs union until a trade deal is set in stone, in order to keep the border with the republic open, but Ms May wants a solution where the whole UK remains in a customs arrangement for a time-limited period.

Tory Brexiteers are demanding that Britain must be able to leave this proposed backstop arrangement unilaterally, but Ms May has argued that this could leave the UK’s decision open to challenge in the courts and is instead attempting to convince cabinet Eurosceptics that the only legally viable approach is a specially constructed “review mechanism”, built into the backstop, that would allow Britain to leave it in a joint decision with the EU.

But it is far from clear whether Ms May’s own cabinet ministers are convinced. When international trade secretary Liam Fox was asked on Thursday if a “mutually agreed withdrawal” from the backstop was acceptable, he suggested it would fail to deliver the “instruction from our voters” given by the referendum.

“That decision can’t be subcontracted to somebody else – that needs to be an issue for a sovereign British government to be able to determine,” he insisted.

Cabinet members have demanded to see the legal advice the government has received on the mechanism, with one source telling The Independent ministers want to be sure there are no other credible options from a legal point of view.

Former Brexit Secretary David Davis: there will be 'some hiccups' in coming year if Britain fails to reach deal with EU

The cabinet insider said: “The legal advice still hasn’t been provided.

“There is sense that ministers have been given a verbal brief, but they want to see it written on paper. Verbal briefs have been known to change.”

Another cabinet level source said: “We need to be able to see in black and white that there is no other way. If it turns out that there is, and what the PM has been saying is a political, not a legal, argument, then there might well be a disagreement on Monday.”

Ms May will also have to convince her Northern Irish partners in government that the review mechanism and the backstop more generally meets their requirements.

But DUP MP Sammy Wilson poured cold water on it on Thursday, telling The Independent: “The review mechanism is not something which she’s going to get past her party let alone ourselves.

“It leaves the final decision partly in the hands of the EU and that is never something that will be to the advantage of the UK.

“The EU will always find reasons and excuses to maintain the continuous backstop, the idea of the mechanism in itself is an excuse to keep us in the backstop indefinitely – that’s the reason that the full legal advice has been sought by ministers and ourselves.”

Branding the way the negotiations have been handled as “incompetent”, he added: “[The PM] seems to think that the deal that she has to strike is a deal with the EU without realising she has got to bring her own party along.

“It’s totally blinkered to the domestic difficulties, it doesn’t deliver on the premises that she has set out, which requires a totally different mindset.”

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