Britain’s vote to leave the European Union on June 23 has already had several unforeseen consequences, as well as ones that were well-telegraphed beforehand and turned out to be surprisingly accurate, like the plunge in the pound.
Britain’s high street stores aren’t the only ones who’ll be concerned by fairly dismal retail sales figures from the Confederation of British Industry on Wednesday. It’s a cause of worry for manufacturers too.
David Cameron was caught on tape humming a merry tune as he walked back into 10 Downing Street after announcing that Theresa May would succeed him as prime minister; yet May herself now has the unenviable job of picking up the pieces he left behind. She inherits leadership of a country whose social divisions were cruelly exposed by the referendum campaign, and which does not as yet have a clear roadmap for its future.
Britain’s political and economic crisis deepened overnight with Fitch joining other major credit ratings agencies in downgrading its sovereign debt. The pound hit a 31-year low as part of a market lurch which has wiped a record $3 trillion off global shares since the vote, with investors ignoring finance minister George Osborne’s soothing words earlier in the day. England’s ignominious Euro 2016 defeat at the hands of lowly Iceland only compounded the gloom: “Brexit2″ trended on Twitter in an explosion of gallows humour. “The beautiful Irony,” joked one Twitter user. “#England knocked out of #Euro2016 by country not even in the EU! Maybe that’s why they pressed the #Brexit button.” Just as humiliating, it turns out there is a push to remove English as an official language of the European Union…
Leaver-In-Chief Boris Johnson has used his regular Daily Telegraph column to paint a rosy picture of Britain’s future post-Brexit. There won’t be any of that nasty EU red tape or freedom of movement. But hard-working Poles will be able to stay in the UK and dynamic British entrepreneurs will still have access to the EU single market. All the money the UK sends to Brussels? That can be spent on a better health service. And yes, Mark Carney and George Osborne are good, wise men with their hands firmly guiding the economy. Let’s not rush — everything will turn out fine. In fact, it will be like a divorce in which the couple still live in the same house, do the washing up together, and even share the same bed. For the children, it will be the same as before, just somehow better.
Hang on a minute. Others will say this has all the plausibility of a fairy tale, a lullaby to put the children to sleep while the real slanging match goes on down below. Either that, or a dangerous case of British hubris and wishful thinking. The problem with divorce Boris-style is that there is another partner here who might not buy that arrangement. Can the EU really give Britain access to the single market without insisting that it signs up to freedom of movement, one of its most cherished principles? And why should Britain alone not have to pay into Brussels coffers or adhere to its regulations? If Britain were to get a deal like that, surely others would want the same? And one last point. Johnson writes that he believes that those who voted Leave were not mainly driven by anxieties about immigration. Sure, many weren’t, but quite a few were — and they won’t be happy if they don’t see actual change. At the risk of stretching the divorce metaphor too far, will UKIP’s Nigel Farage be the child who does not fall asleep and bursts into the kitchen in his pyjamas shouting: “But daddy — you promised!”
Around this time last year, as another white male took the reins at the Federal Reserve Bank of Philadelphia, the Fed’s archaic and opaque system of choosing its regional presidents started to come under fire. At first the criticism was over the way the system appeared to favor insiders. Patrick Harker, at the time the new Philadelphia Fed President, had sat on the regional Fed board that was tasked with filling that position. Later that summer the Dallas Fed would name Robert Kaplan, who is also white, as its president despite the fact that he was a director at the executive search firm that that regional Fed board hired to find candidates. When the Minneapolis Fed named Neel Kashkari its president later in 2015, groups like the Fed Up Coalition pointed out that while he was the only non-white regional president, he, like Harker and Kaplan, had former ties to Goldman Sachs.
Federal Reserve Chair Janet Yellen may still be hedging her bets on when interest rates will rise next, but with the one notable exception of weak hiring in May, many of the economic data in recent weeks suggest the next hike could still come sooner rather than later.
Negative interest rates as a monetary policy tool will probably be around a while yet, but a backlash questioning their long-run benefits for Europe and just how low they can go before they do real harm appears to be growing.