Economic Update: Brexit means… not having to say what Brexit means (yet)
“Brexit means Brexit” is likely to top the list of most repeated phrases of 2016 (at least in the press). But what does Brexit (means Brexit) mean for the economy, and working people’s jobs, rights and pay? In a new report, we attempt to survey the evidence. The problem is, there’s not that much evidence yet to survey.
There’s two reasons that we think it’s too early to suggest we know what the impact will be. First, most of our hard indicators are lagged – so we won’t have clear evidence on employment, business investment, or growth following the referendum until later in the year. Some indicators of confidence have picked up following the initial shock of the vote – including the purchasing managers’ surveys in both services and manufacturing. That’s good news.
But talking to our newly established panel of trade union convenors in private sector employers across the country, we saw several worrying signs of businesses delaying investment. Some had seen immediate impacts:
“No-one really knows what’s going on and there’s lots of uncertainty… all investment has stalled…in [location removed] 80 per cent of exports go to Europe. One future model will be built there, but the [name removed] model will be stopped, and no new models are planned.”
And some were clear that their companies were in ‘wait and see’ mode:
“No drive to create full time jobs. Management are citing too much uncertainty in the market. If there was a downturn, management wouldn’t want to make new recruits permanent.”
The Bank of England’s inflation report in August suggested that a fall in business investment in 2017–with the forecast falling from 7.75 per cent to a decline of -2 per cent – would mean a sharp slowdown in growth. The obvious concern is that that feeds through to an increase in unemployment; current forecasts would see almost an additional quarter of a million people out of work. That’s why urgent action on infrastructure investment from the Government is now even more important – not only to build the homes, transport and aviation infrastructure the country desperately needs for its future success, but to help give businesses the confidence to keep investing and hiring.
One clear indicator we do have is the sharp fall in the value of the pound. If that feeds through into higher consumer inflation as predicted, we would see the return of the wage squeeze. The Treasury’s current round up of forecasts would put real pay growth at just 0.1 per cent next year.
But the second and obvious reason for thinking it’s too early to relax about how Brexit will impact on future jobs and pay, is that Brexit hasn’t happened yet. The current period could perhaps best be described as a ‘phoney war’ before the real negotiations about the shape of our future trading relationships with Europe and the rest of the world begins, and the UK actually leaves the EU.
It’s the shape of those trade deals that will have the long-run impact on working people’s prospects. Much of the attention is recent weeks has focused on how they’ll affect the City and financial services. But new analysis in our report suggests that outside of London, manufacturing plays a far bigger role in supporting jobs – with more jobs linked to EU exports in manufacturing than in financial services in every region except London. Any special pleading for the City therefore risks exacerbating the regional inequalities that were brought to the fore in the Brexit vote.
Our convenors were clear that it’s the shape of any future deal that matters for jobs in their workplace:
“If we get Brexit light and access to the EEA then probably the company will continue to grow. But if we are made to leave… then a lot of the work will go to Germany.”
“We’re worried about ten per cent tariffs under WTO rules, and non-tariff barriers would mean that the plant would be forced to manufacture top spec cars, which would be the most expensive way to do it. [Company name] may as well transfer resources to Turkey who aren’t in the EU but can manufacture top spec for cheaper labour.”
Government has the opportunity to stave off the potential hit to jobs and pay, with a package of much needed infrastructure investment that boosts business confidence.
But ultimately we need a deal that protects working people’s jobs, rights and pay across the country. Until we see that, we’ll hold off from any conclusions about what Brexit actually means.