The COVID Crash and Brexit – Are they insane?
TruePublica Editor: There is a dawning realisation and genuine fear amongst Tory MP’s and those at the very heart of government as the cabinet is told the economy is now diving vertically like never before as a result of the COVID-19 lockdown. They are truly shocked at the numbers and are chomping at the bit to restart the economy irrespective of the consequences.
Both Reuters and The Times report that Britain’s gross domestic product (GDP) will fall by about 30% in Q2 between April and June. Chancellor of the Exchequer Rishi Sunak told his colleagues just as members of the cabinet call for easing lockdown restrictions amid the coronavirus outbreak. There were apparently ten ministers who were pressing for the lockdown to be eased next month.
The report did not identify those ministers.
“It’s important that we don’t end up doing more damage with the lockdown. We’re looking at another three weeks of lockdown and then we can start to ease it,” a minister was quoted as saying by The Times. The minister was not named.
My suspicion is that this figure by the Chancellor is rather optimistic.
The total annual GDP of the UK is about £2.2trillion or £550bn a quarter.
Using Sunak’s estimates, the loss of business activity to the economy is about £1.8billion a day/£54bn a month (30 per cent of £550bn per quarter) in lost business revenues.
Using this as a benchmark and easing the lockdown by one third per quarter (this is an optimistic best guess), the loss of GDP in 2020 will be about 15 per cent or £330billion (£165bn in Q2, £110bn Q3 and £55bn in Q4).
I think we can all agree that these numbers add up to huge damage to businesses and household incomes alike. And we know the national debt will significantly increase. We also know, one day, this all has to be repaid and it does not bode well for our future. However, various economists also assume that the economy will bounce back in 2021 (which I do not believe in the slightest).
Taking all that information, we can assume from what we are told that the economy is going to substantially contract in Q2, ease off in Q3 and will be romping off again in Q4 with 2021 in good shape. We know how hard this will be for household finances and many millions of people are losing sleep over it.
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Now compare to Brexit
Britain is on course to sacrifice as much as £130bn in lost GDP growth over the next 15 years if the Brexit deal goes ahead, according to government figures.
Estimates published by the government last year show an agreement similar to Boris Johnson’s settlement, which envisions striking a limited free trade deal with the EU, would strip 6.7% from the UK’s expected path of GDP growth between now and 2034.
The 6.7% of GDP cost of Johnson also adds up to making people on average £2,250 a year poorer by 2034.
Let’s say that again in something we understand. The COVID-19 shock to the economy is going to cost £330bn in lost revenue over one year. It is nothing short of catastrophic. Brexit is going to cost about half that but spread over 15 years and we’ll have to add that to the current loss just as we enter 2021 when (economic) Brexit actually takes place.
Leaving aside that geopolitical relationships have already changed as a result of the COVID outbreak, and that countries are hoarding supplies of food and medical security, that some countries are risking everything to keep their citizens on side and that the economic landscape is going to look a lot different next year, can a Brexiteer answer this question. Who in their right mind, would proceed with Brexit this year, given not just the enormous damage the economy has unexpectedly experienced – would still push on knowingly to kill off another 6.7 per cent of GDP? Are these people mentally unstable?
If anyone thinks austerity was bad – wait until Brexit comes along and we break economic ties with the EU and free float in a post-COVID world?