The Brexit dream is over, or so say the markets, and they are probably right

A Pro EU protester holds fake bank notes of Boris Johnson and Jacob Rees Mogg outside Parliament in June 2018
Barcroft Media/Barcroft Media via Getty Images
A Pro EU protester holds fake bank notes of Boris Johnson and Jacob Rees Mogg outside Parliament in June 2018
Barcroft Media/Barcroft Media via Getty Images

JEREMY WARNER , THE TELEGRAPH|AIWA! NO!|The Brexit dream is over – in any meaningful sense, at least. That was the clear and unambiguous message from markets this morning, which cynically marked the pound up sharply in response to Britain’s seismic political crisis, and they are probably right.

You might have thought the correct response would have been the other way around, but no, markets are betting that Theresa May’s crushing defeat makes a no-deal Brexit less likely, and either a much softer Brexit – Norway Plus – or no Brexit at all, the overwhelming odds-on end game.

Those advocating a clean-break on WTO terms of trade have shot their bolt. Their time in the sun is over, and they are heading for a defeat just as bad as that of Theresa May’s ritual humiliation. Their principled rejection of her deal, in unholy alliance with hardline Remainers and an opportunistic Labour Party, is about to backfire spectacularly. If the gamble was to run down the clock to the default Brexit position of departure with no deal, it is very unlikely to succeed against a parliamentary majority determined to thwart it.

Here’s the thinking. Obviously, May’s deal is now dead in the water. After such an overwhelming defeat, the sort of tweaking that Brussels might be prepared to consider would fail to do the trick. Essentially, it’s back to the drawing board. What might be acceptable to Parliament that could also be agreed with Brussels?

When all is said and done, the only plan that might command a parliamentary majority would be Norway Plus, or basically Labour’s declared position of remaining in both the single market and the customs union. This is “Brexit in name only” (Brino), and therefore a continuation of the status quo in economic terms. To agree it,  Theresa May or whoever succeeds her would have to reach out to Labour and others, leaving rebellious Brexit hardliners on the Tory backbenches to slink off into the political wilderness to lick their wounds and regroup.

It would also mean agreeing free movement – another of May’s redlines crossed – but the political weather has changed on this front. Immigration is no longer the issue it was, declining, according to opinion polls, from the top of voters’ list of concerns to the position of also ran.

Politically, perceived betrayal of the Brexit dream may also be easier to pull-off than it was. YouGov polling suggests a big change in sentiment over the last year; those who think the referendum decision was the wrong one now substantially outnumber those who continue to believe it was right.

Of course, the polls could be wrong. And we can all point to examples of people who voted Remain but have had their sinews stiffened, as it were, by subsequent debate and would now much rather leave. Yet the direction of travel is clear enough: observing the current political mess, there is growing buyers’ remorse.

Labour’s objective is obviously only that of bringing the Government down. Forget any higher, national interest, purpose. But it will lose the no-confidence vote, and once it realises that another general election is for the moment off the table, it will be forced to agree any government plan for Brexit that meets its own, incoherent, objectives. Rebecca Long-Bailey, Labour’s shadow business secretary, admitted as much in a TV interview last night.

Jeremy Corbyn
Labour leader Jeremy Corbyn CREDIT: GETTY IMAGES

This coming together of Tory centrists with Labour might seem to spell the end of party politics as we know it, with the breakup of the Tory party then inevitable, but I wouldn’t be so sure. The Conservative Party is a mighty powerful brand electorally, with fierce tribal, cultural and ideological loyalties. Neither wing of the party is likely to give up access to this electoral powerhouse by storming out.

And so to the economy. If we are heading for a much softer form of Brexit, or no Brexit at all, then much of the current uncertainty in the business environment lifts. A stronger pound also makes consumers better off by reducing the price of imports, providing a further boost to already rising real wages.

Two to three months ago, markets were pricing in at least two rate rises from the Bank of England this year. But with the chances of a no deal Brexit rising, and the global economy slowed, those expectations shifted markedly, with markets judging there to be only a 50pc chance of any rate rise at all. That judgement is now changing again.

If no deal is now off the table, the economy can proceed without risk of damage, confidence ought to return, and the Bank of England can return to the strategy of gently nudging interest rates higher. That was the other reason the pound rose. As I say, the thinking might be seen as unduly sterile and cynical by Brexit idealogues, but it is hard to argue with the logic of the analysis.

What of the anger that Brexit betrayal will engender, dividing the country in renewed civil war? Well, anger dissipates over time, and if the politicians could for a change start to focus on the real issues facing the UK economy, from poor productivity to technological revolution, rather than the distractions of Brexit, then there is some chance of things getting back onto an even keel. Brexit was an expression of these discontents, but in itself, scarcely an answer to them.

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