Predictions For 2018 - Part 1

There will be an inexorable dynamic that creates a coalition and demand for an exit from Brexit.

The tiny majority for leaving the EU in the 2016 referendum, quickly turned into only a minority supporting Leave, by February of 2017. In every poll since then the majority of those polled have favoured remaining in the EU. The latest poll gives Remain its largest ever lead, with 54.5% supporting Remain, as against 45.5% supporting Leave. The largest component of this increased lead for Remain comes from amongst those who did not vote in the 2016 referendum, amongst whom, 80% back Remain, against 20% supporting Leave.

The main argument that has been made by Labour, and Remain supporting Tories, against actively opposing Brexit, has been a misplaced requirement to respect the narrow referendum result. The fact that a clear majority of the population now reject that referendum result, removes any such requirement. It would clearly be ludicrous for any politician to argue that they continue to uphold the requirement for Brexit, on the grounds of a snapshot poll in June 2016, now that it is clear that a substantial majority of the population support Remain. It would be to mindlessly allow the past to command the present and future. If Labour, and Remain supporting Tories were to follow the logic they have applied over the last year, which led them to mindlessly claim the need to implement Brexit, they would now claim the same requirement to oppose Brexit. If Labour and Remain supporting Tories, did so, the majority in favour of Remain would quickly grow even faster. And, the realities of bourgeois electoral politics will quickly impose a necessity on those politicians to change their positions in order to reflect the views of that Remain supporting majority of the population, if they want to get elected. That will impose itself more acutely on Labour, a large part of whose increased support in the 2017 General Election came from Remain supporting Liberals, Greens, and Tories, and mobilised youth, looking for a means of overturning the referendum result.

The lies told by the Leave campaign are being necessarily exposed as every day passes. It's not just the big lie about the £350 million a week for the NHS that was promised, which turns out not only not to be coming, but turns out to be that the effect of Brexit, already in lost economic growth, has cost the country around £350 million a week, which could have been going to the NHS. Every day, every week that goes by, some other aspect of the lies told by Leave gets exposed, and the more attention that is given to Brexit, and the more people get to actually discuss, and find out the reality of the EU, the more they get to realise that all of the lies that the gutter press fed to them over the last thirty years are completely without substance, just as the same xenophobic lies that gutter press told about immigrants, were without substance, and merely a means of finding scapegoats for the deficiencies of British capitalism.

The puffed up, colonial era bravado of the Brexiteers that still tried to pretend that Britain was some global power to whom the world was beholden, and to whom it would quickly bend its knee, collapsed, on first contact with reality, as Theresa May was forced to surrender every one of her red lines, in the negotiations with the EU. The ridiculous lie put out by the Brextremists that the question of the Irish border posed no problem, was shown up for what it was as soon as negotiations began, and the fudge, undertaken by May, on that issue, in order to get permission to enter Stage 2 talks on the Transitional Period, after Christmas, will quickly lead to the divisions in her Cabinet exploding in the New Year, as the EU, alerted by the statement by David Davis and others, and capitulated to by May herself, will demand that the Stage 1 deal be set down in a legal document that removes all question over what “Regulatory Alignment” means, before they agree to grant Britain a Transition Period, prior to entering into trade talks.

The Brextremists claimed that all of the “project fear” pronouncements of the Remainers prior to the referendum had been proved wrong. But, those pronouncements, some of which were overblown, were largely based on the assumption that Article 50 would be triggered more or less immediately after the referendum. The fact that it wasn't, therefore, necessarily altered the calculus on those pronouncements. Nevertheless, the referendum result itself was enough to send the Pound tumbling by 20%, which then caused UK inflation to rise sharply, putting a further squeeze on UK workers' living standards. The Brextremists have tried to put a brave face on it, by claiming that a lower Pound gives British firms a competitive advantage in export markets. That is also false. For the most important elements of UK exports, in high end professional services, price is not the most decisive feature. For UK manufacturers, any benefit of a lower Pound in reducing export prices, is offset by the higher cost of inputs, for that manufacturing, resulting from the same lower Pound.

In recent months, the Pound has strengthened against the Dollar, as the Dollar has weakened due to the ending of QE by the Federal Reserve, and its raising of official interest rates, which causes hot money from abroad, seeking secure capital gains, or at least capital preservation, in US financial assets, to move into Europe and elsewhere, where central banks are still standing behind those asset prices, to keep them inflated. That means that some of the inflationary impact of the lower Pound has relaxed, as the Sterling price of oil and other internationally traded primary products falls. However, the quickening in the pace of the global economy means that demand for many of those products is rising, causing global prices to rise. If the Federal Reserve continues to raise official rates, at some point in the next year, a tipping point is likely to be reached, whereby the yield on US financial assets will prove attractive to hot money, as it considers the potential for other monetary authorities, such as the ECB, withdrawing from QE, and thereby withdrawing support for the financial assets in those countries. At that point, the Dollar is likely to appreciate more quickly, and the Pound will depreciate.

Already, many UK companies have seen reduced profitability, as they have attempted to hold on to market share, by holding their prices down, whilst higher import prices have caused their input costs to rise. In the coming year, that will see either many of these companies simultaneously raising their prices, or else will see some of them going bust, before the remaining companies then raise their prices accordingly. That means that faced with a falling Pound, and rising inflation, the Bank of England will be led to raise its own official interest rates, but the immediate effect of that is likely to be that hot money, fearful of suffering capital losses, as UK bonds and financial assets sell-off, will leave the country, causing a further fall in the Pound. Only when UK interest rates rise to a sufficiently high level that they offer an attractive yield for those speculative flows, will it be possible to stabilise the currency.

But, those rises in interest rates will cause a sharp sell-off in UK assets, including in UK property. The continued inflation of asset price bubbles, has been the main factor underlying the economic model of British governments for the last 30 years, and more. The conditions that enabled and encouraged that model are now unwinding fast. It means the debt bubble, which is the other side of the coin to this asset price bubble will burst along with it. The specific conditions that Brexit brings with it, means that Britain will suffer more than other economies, as their own asset price and debt bubbles burst.

Those other countries are now entering a period of more rapid economic growth, as the policies of austerity and QE, which aimed to restrict economic growth, and to divert resources into inflating asset price bubbles, reached their limits, and the underlying economic fundamentals and reality assert themselves. Across the globe, near zero yields on financial assets, led private productive-capital to find ways of raising funds to invest in real capital, where a much higher rate of profit was achievable. As, across the globe, the number of workers increased, and those workers began to demand additional wage goods, so the ability of austerity measures to restrict the growth of aggregate demand reached its limit. The more demand for wage goods rose, the more an incentive was created, for firms to invest in additional capital, even if initially only additional circulating capital, in the form of labour-power and materials, which in turn creates additional aggregate demand in the economy. Not only does this create a dynamic whereby the demand for money-capital rises relatively so that interest rates rise, and asset prices decline, but that same dynamic means that the decades long certainty that asset prices would rise, is ended, and the potential money-capital tied up in financial assets and property, starts to get released, and floods into the wider economy, enabling consumer goods prices to rise.

Britain, in the next year, will face a rapidly growing global economy, most notably, for Britain, in the EU, whilst the UK economy stagnates or goes into recession. It will face rising global prices, as that economic growth accelerates, which will cause UK import prices and inflation to continue to rise, contrary to the predictions of the Bank of England and the government. That inflation will be exacerbated as the Pound resumes its fall against both the Euro and the Dollar. And, as global interest rates rise, the UK will face even higher rates of interest as it suffers more notably from rising inflation, and a falling Pound.

The more these consequences not just of Brexit, but also of the false economic, debt based model, of the UK economy, become obvious, the more it will become obvious that the problems of the UK economy were not a consequence of EU membership, or of immigrants, and that, in fact, both those things mitigated the effects of the conservative economic model pursued by UK governments over the last 40 years. Moreover, it will become increasingly obvious that, if Britain exits from the Brexit process, it would have some chance of, at least, retaining some of those concessions that it currently enjoys, for example, its budget rebate, its exemption from being in the Eurozone, and Schengen Agreement. If Britain continues with the Brexit process, and finds itself, after 2019, needing to try to get back in, as these deleterious consequences for the economy intensify, it is likely only to be able to do so, on similar terms to any other new entrant, though on a fast track, as within the period of the Transition Period up to the end of 2020, it would not effectively have left. It would then have to commit to joining the Euro, losing its rebate and so on.

Those factors, together with the increasing pressure being applied by big business, as the effects of Brexit manifest themselves, will likely create the conditions for a sizeable coalition of forces demanding an end to Brexit, before March 2019.

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