May’s Hard Brexit Plan Has Economists Questioning Her Vision

Updated on
  • U.K. Prime Minister set out negotiating goals in London speech
  • Priorities form little more than wish list, Commerzbank says

Theresa May's Brexit Speech in 50 Seconds

U.K. Prime Minister Theresa May’s attempts to lay out her plans for leaving the European Union may have promised a “global Britain,” but they left some economists underwhelmed.

While May’s pledges to quit the single market and instead seek a customs agreement with the bloc were the deepest insight yet into Britain’s strategy, they form little more than a “wish list,” according to Peter Dixon, an economist at Commerzbank AG.

“Anyone looking for any great insight as to how the U.K. will be able to achieve the objectives she set out will have been disappointed,” he wrote in an e-mailed note to clients. “The nature of the deal itself will depend on the compromise which can be achieved with the EU. And on that front, we will have to await the EU’s opening play to assess how realistic her goals are.”

Brexit adds another unknown for the world economy as Donald Trump prepares to be sworn in as U.S. President. Anthony Scaramucci, an aide to Trump, said on Tuesday in Davos, Switzerland that trade deals are asymmetrical and that some countries play by different rules.

Outlining the government’s Brexit plans through 12 core objectives, May said that she was confident a deal can be reached with the EU once the trigger to leave is pulled by the end of March. She called for a “phased approach” to implementing the new rules to ensure the Brexit process is smooth.

Huge Challenge

Simon Wells, chief economist at Europe’s biggest bank, HSBC Holdings Plc, said how that will work in practice “remains uncertain and subject to a huge challenge of negotiation.” May said she wanted an agreement about the nature of the future relationship with the EU by the time the Article 50 exit negotiation process completes in early 2019, followed by a phased process of implementation.

May’s warning to her European counterparts not to punish Britain in the negotiations -- perhaps to discourage other countries from leaving the 28-member group -- did little to bolster optimism. Indeed, her “fighting talk” raises the risk of a more extreme severing of relations, tilting risks to the economy to the downside, according to Berenberg’s Kallum Pickering.

The U.K. economy has so far proved unexpectedly resilient in the wake of June’s Brexit vote, as consumer-led strength helped defy forecasts of a slowdown by institutions including the Bank of England and International Monetary Fund. But that could change as the divorce talks develop and, despite May’s pledge to provide clarity on the process where possible, the country may have to wait some time for any further significant news.

“The prolonged uncertainty over forming agreements will present a significant challenge to the economy and one from which consumers cannot be called upon to buy our way out,” said Jagjit Chadha, director of the National Institute of Economic and Social Research in London.

Business leaders also questioned the value of May’s plan, with the British Chambers of Commerce saying many are preparing for a range of possible outcomes.

“In business, what you achieve in a negotiation -- not what you bid for -- is what really matters,” Adam Marshall, director general of the BCC, said in a statement. “While businesses now have a clearer sense of the prime minister’s top-line priorities, they will come away from her speech knowing little more about the likely outcome of the Brexit negotiations.”

While May’s speech is unlikely to affect growth in the short term, Paul Hollingsworth, U.K. economist at Capital Economics, warned that the economy’s health could falter.

“Despite knowing a little more about the government’s plans, the medium- to long-term outlook remains highly uncertain,” he said. “After all, it will depend on just what is negotiated.”