The prospects of a softer Brexit may have increased following the UK’s inconclusive election result, with Theresa May’s mantra of ‘no deal is better than a bad deal’ having quietly been dropped by the UK government. But so has the uncertainty about the Brexit process.
“In what was always going to be a messy and difficult negotiation, May’s defeat while trying to strengthen her Conservative majority has further weakened her bargaining position,” said Philippe Waechter, chief economist at the Paris-based asset manager Natixis GAM.
“As such, while a clean break – “hard Brexit” – looked like an obvious outcome, the range of possible outcomes has now widened. A year after the vote, the economic uncertainties of Brexit have grown larger, not smaller,” he added.
Are there no positive aspects to Brexit at all then? There is one, says Waechter. “The sole positive effect of Brexit is that it has been perceived by other EU countries as an example of what mustn’t be done.”
Is there no silver lining at all then? Well, while sterling’s fall has made UK consumers poorer, it has made British companies more competitive. The country’s trade deficit has narrowed significantly since the Brexit vote. According to Her Majesty’s Revenue & Customs (HMRC, the British tax authority), British exports increased by 7.8% y-o-y to £26.5bn (€30.1bn) in April, while imports decreased by 5.5% to £38.3bn during the same month.
However, if Brexit results in higher trade barriers with the UK’s European trading partners, these gains may well be reversed. In that light, chancellor Philip Hammond’s call in a recent high-profile speech to “prioritise protecting jobs, protecting economic growth and protecting prosperity” in Brexit talks it is probably a positive development for the UK economy.