Richard North, 07/06/2017  

If the written word has any power at all then, despite the incontinence of the media, this really is the "Brexit election". First, there's been the personalised leaflet I featured yesterday, exclusively featuring Theresa May, enjoining us to "back me to lead Britain's Brexit negotiations".

Then we got the Conservative candidate's official electoral communication, a double-sided "c-fold" leaflet, to which 60 percent was given exclusively to Mrs May, including a full half of one side devoted to a personal message from "Rt Hon Theresa May, Prime Minister", asking for our backing on Brexit and telling us – amongst other things – that "the only way you can back me to ensure we get Brexit right is by voting for my candidate in your local constituency".

And now, in we get a personal letter in a plain white envelope, delivered by the postman. It is on a white sheet of paper with the letterhead in bold black capitals, comprising the name, Rt Hon Theresa May, with the title underneath in full: "Prime Minister of the United Kingdom". The only mention of Conservatives is in tiny print, as part of the promoter's declaration – so small you need a magnifying glass to read it.

In this "unique election", the Prime Minister tells us, "you can vote for me of Jeremy Corbyn". But, under the sub-title "stand with me to help strengthen my Brexit hand", the Rt Hon Theresa May avers: "I'll stand up for Britain, and I'm asking you to stand with me to help strengthen my hand'.

And so, with the message that, "getting Brexit right is central to everything – our economic security, our national security and our place in the world", we are further enjoined to: "Stand with me. And vote for me".

Finally, just it cap it all, we had another personalised leaflet, delivered by a party worker, who knocked on the door to ask us if we knew where the polling station was.

If we were to give points for trying – or money spent – Mrs May wins hands down, although her letter may confuse some people. Contrary to her assertion, the names of neither her nor Mr Corbyn will be on our local ballot paper, and we most certainly cannot vote for either of them.

Such has been the torrent of paper though that, irrespective of what the media might publish between now and the election, Mrs May has associated herself unequivocally with the Brexit negotiations. It will be sufficient for her to assert that a Conservative win gives her a personal mandate to "negotiate a deep and special partnership with our European neighbours", and to "strike export deals for British goods and services".

However, beyond offering us the same vague 12 points that she first enumerated during her Lancaster House speech back in January, Mrs May has given us no further detail as to how she might manage our negotiations. And all the while, there is the threat hanging over us of a "no deal" scenario, with the UK willing to walk away rather than accept a "bad deal", bearing in mind that any deal -compared with what we could have had, will be a bad deal.

The very last thing the "Prime Minister of the United Kingdom" would want, therefore, is this high profile piece from Reuters, based on work from JP Morgan, one of the largest financial institutions in the United Kingdom, asserting that British voters are sleepwalking to painful Brexit.

Contradicting our revered prime minister, it argues that failure to reach a deal would be the worst outcome for the negotiations. Most UK exports, it says, would need to be checked before crossing the border. British lorry drivers might no longer be allowed on Europe's motorways. And that's just physical goods. More than a quarter of UK services exports to the EU would be lost, JP Morgan reckons.

Reference is made to a recent report from the World Bank, also picked up by Pete, which estimates that up to 28 percent of UK trade with EU Member States could be lost.

Looking at the methodology behind that assessment is interesting, as the World Bank calculates the positive effect of newly introduced trade agreements and then reverses the gains to give an indication of the sort of losses that could be experienced.

What is not being factored in, though, is that gains through trade deals are made in an orderly, measured fashion, often as a result of long-term strategic decisions made by businesses taking advantage of more favourable trading environments. By contrast, the "walk away" scenario, though, is not in any way a mirror image of a business response to a new trade deal.

In many respects, where non-tariff barriers kick in, there will be physical barriers to trade – in the form of a variety of border checks, enforced by officials of the EU Member States. These actively disrupt the flow of goods, and also interfere with the often-related provision of services. In some respects, a walk-away Brexit will have effects similar to the 2011 Japanese earthquake, in terms of its disruption of supply chains and trade generally.

Such major perturbations require businesses to undertake emergency mitigation, which tends to be expensive. Once in place, they will want to recoup costs and will be reluctant to repeat the exposure. On that basis, an intense short-term event can have effects in the medium- to long-term which are several magnitudes higher than simple projections would indicate.

The point here is that manufacturers which switch suppliers to overcome short-term problems may be reluctant to return to their original suppliers, even when the original impediments have ceased to exist. Hence, the overall damage to UK suppliers could end up being a multiple of the short-term cost.

This is known as the "perturbation multiplier" which has the potential to double or treble initial losses. And the problem is compounded by the fact that there no model on which forecasters can rely. This is a unique scenario, with political rather than economic drivers. These do not follow predictable paths.

Furthermore, if short-term effects are severe, they can wipe out any longer term gains. After all, if someone stabs you in the heart, the short-term effect is such that you no longer have a medium or long-term future.

Whatever the dangers that might arise from Mrs May's strategy, the Reuters report notes, quite rightly, that the campaign has skipped around them, and especially the consequences of a "walk away" scenario.

Even in Brussels, there is a tendency to discount the dangers. The mood music seems to hold onto the expectation that Mrs May's "no deal" scenario is electioneering rhetoric. The "colleagues" don't seem to have appreciated that the "no deal" was part of Mrs May's Lancaster House speech – delivered months before the election announcement.

The indications are that Mrs May anticipates using the "no deal" walk-out as a "reset", enabling her to avoid some of the more politically difficult issues. She expects the EU side to tone down their demands in response, with negotiations recommencing very quickly thereafter.

In turn, she does seem to have appreciated that the EU's "common position" is not easily changed, leaving the EU negotiators unable to respond quickly (or at all) to a UK walk-out. As such, May (and her advisers) are almost certainly misreading the position, setting us up for a worst case scenario, when the "perturbation multiplier" will be at its greatest.

Interestingly, in its global economic forecast update, issued this month, the World Bank is predicting a return to growth. But, it notes that negotiations around the exit of the United Kingdom from the European Union "also carry risks". If the uncertainty persists, it says, "it could weigh on investor confidence and derail the ongoing recovery in growth".

That's less severe than its pre-referendum warnings, when the response from leavers to what was seen as "interference" was pretty sharp. But the fact is that any of May's options almost certainly means lower growth – particularly if she keeps her renewed vow to curb immigration.

Notes the JP Morgan report, UK economic output is about nine percent higher in real terms than a decade ago, relying on IMF figures. But GDP per head is up just two percent. If the population stops growing, potential output does too. Its model suggests that the level of UK services exports to the EU would drop by 29 percent.

Voters are ill-prepared for this outcome, says Reuters. Brexit will be just one of a range of factors influencing their choice when they go to the polls. But whoever wins will have to deal with a "disappointed" electorate when reality dawns.

I guess, though, that "disappointed" is the very mildest response that Mrs May might expect. If she pursues her "no deal" madness and trashes the economy, she will shortly thereafter no longer be writing letters with a letterhead proclaiming "Prime Minister of the United Kingdom".

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