‘Brexit uncertainties’ shred investment – yet are far preferable to being launched over the cliff edge

Editorial: While there is some hope it may be ameliorated or avoided altogether, investment, even in its depressed state, will be higher than if no-deal Brexit was delivered

The British economy has registered its poorest quarter for growth since it was dragging itself out of the Great Recession in 2012. There is nothing inevitable about this showing. It is true that a great trading economy such as Britain – there is no irony attached to this boast (yet) – will inevitably be affected by the slowdown in international trade, and the outbreak of trade wars, and that this has pushed the reading down.

However, the “uncertainties around Brexit”, as they are euphemistically described, are something the country does not have to labour under, and certainly not without a final democratic say by the people on what should happen next, politically and, thus, economically. As chancellor, Philip Hammond used to like to say that no one in 2016 voted to become poorer – well, now is the moment to prove that once and for all.

These “Brexit uncertainties” have been distorting the figures for some time, in different directions. The car manufacturers brought forward their autumn shutdowns to March and April to cope with the expected chaos, depressing output. On the other hand, government stockpiling and consumer panic buying artificially boosted GDP up in the spring, as the 29 March deadline approached. When it came and went, the effect subsided. Now that the air is full of talk about no-deal Brexit, no doubt retail sales will be boosted, for a time. Much of this will wash out in succeeding months; but there is one element of GDP that is unlikely to recover, and which has shown a consistently dismal showing since the 2016 referendum – investment.

For more than three years British business has held off, postponed or frozen its decisions on investing in the UK. New plant and machinery, new software and office accommodation, new systems and training facilities: all have been mothballed or cancelled. The motor industry is a case in point. The latest figures from the Society of Motor Manufacturers and Traders show investment has fallen 90 per cent from the long term average.

This matters much more for the future than consumer demand or even exports, because the level of investment in any economy dictates its productive capacity many years, if not decades, into the future. It is not, in other words, only a matter of the millions spent on investment in 2019, but the effect that investment has in reducing costs, raising productivity, sharpening competitiveness and securing jobs and higher wages way into the 2020s and beyond. If Britain has had one overriding economic weakness in recent decades it has been its sluggish rates of productivity growth.

The roots of this, at least in recent times, have puzzled economists, but the fundamental truth remains that higher investment will mean higher wages and jobs growth in the longer term. It will also help provide the funds to pay for better public services, and make the great demographic challenges of social care and health spending that much easier to meet.

Of course the government claims that “boosterism” will help alleviate this. Vast public spending programmes, such as the Northern Powerhouse, have been renewed or announced by Boris Johnson, though sometimes with a total absence of funding commitments, planning or detail. The underground system for Leeds that Mr Johnson seemed to pledge early in his leadership campaign has not been heard of since, for example, and there are lingering doubts about Heathrow expansion and HS2. Plans to upgrade hospitals in “left behind” towns seem more secure, but if Brexit is added to the current global slowdown, then there may be precious few tax revenues or scope for borrowing to pay for these ambitious plans.

The wider point is that there is no way even the most positively energetic government dedicated to “boosterism” can substitute public investment for every bit of lost private sector investment. When Honda finally pull out of Swindon in a couple of years, it is difficult to see what HM Treasury can do to replicate the same mix of highly paid skilled jobs and an operation that contributed as much to the British balance of payments and helped maintain some critical mass to the UK automotive sector. Even if they decided to make Swindon’s roads, parks, hospitals, health centres, social housing, schools and colleges the best in the country, the loss of jobs and incomes would still not be made up.

“Brexit uncertainties”, then, have been shredding nerves, investment and economic activity both now and into the future. Yet, unsettling and damaging as all this is, such “uncertainties” are vastly preferable to making no-deal Brexit a reality, just because the public is bored with the arguments and wants to “get it over with”. While there is some hope it may be ameliorated or avoided altogether, investment, even in its depressed state, will be higher than if no-deal Brexit was delivered. If it is, then we will see many more dispiriting economic figures, and the 2019 Q2 GDP numbers will seem something of a nirvana.