One week on from the end of the world and the world is still somehow turning.
The FTSE 250 is admittedly down 8% on last week and has been among the, if not the worst performing asset globally over that time period. The pound has fallen to the low 30s against the dollar and the Euro is trading at parity in some places.
The French economy has overtaken us as the fifth largest in the world and the EU seem to be playing hardball on negotiations, which haven’t even started yet. The picture is not rosy.
And yet, and yet – the most likely outcome for the UK remains a Norway style deal – something if, when taking into account the 48% who voted to remain and the 52% who voted to leave, would get a very high level of support. We will likely have to trade some financial passporting and definitely the Euro denominated trading in turn for restrictions on migration. We will also have to contribute to the EU budget. But we will be outside the EU.
We will no longer need to fund the CAP – New Zealand abolished agriculture subsidies and saw the farming sector boom. We will be able to control the fisheries in our waters, we will never join the Euro and will be able to determine our policy in myriad other ways.
We will be able to sign our own free trade agreements. This is the key.
I’m a classic liberal. I believe in the primacy of the markets. So to my mind we should unilaterally abolish all tariffs, decreasing cost to consumers and industry in the UK whilst building goodwill with other countries. This would only reduce costs by around 3% – non-tariff barriers remain the real hindrance to trade but this would be a good signal. Tarrifs on agricultural products remain considerably higher – unilaterally abolishing these would grant the triple benefit of reducing UK food costs, improving economies in Africa and decreasing the need for the UK aid budget through trade.
We should aim to have in place before we leave the EU a free trade deal with as many countries as possible. Australia, New Zealand, Canada and Singapore are all obvious first ports of call where the likelihood of a true free trade agreement is high. We can replace the lost GDP from the services, which we will inevitably lose, with increased trade with the rest of the world. A free trade agreement with the USA will likely take longer to negotiate but would be in place before TTIP was ever ratified.
We remain the third largest contributor to NATO, we remain a P5 member of the UN Security Council, a member of the G8 and G20. A member of the Council of Europe, the IMF, the World Bank. We remain the centre of the Commonwealth which could form a new loose free trade area. English is still the most widely spoken international language in the world. The world still revolves around GMT – the easiest way to trade with Asia if you’re based in the US is to go through London for the strong legal system, the timezone, the language. London remains a vibrant, international city.
The short-term is a blip. The short term is always more volatile than the long-term. Many economists think we’re likely to enter recession over the coming year. However, the markets will settle down over a period of weeks. Over a six-month timeframe our deal with the EU will become clearer, pending elections in Germany, France and the Netherlands. Over a one year view we will be able to see how initial efforts at external trade deals are going. Over a ten-year view the impact of our shaking off the shackles of the EU will be clear as our growth rate continues to outstrip the EU.
We remain a vibrant economy with a huge deal going for us. The end is not nigh.