The phoney war is almost over

The publication today of the Chilcot inquiry's report into the UK government's prosecution of the war in Iraq may at first sight have little to do with the panic gripping financial markets, but bear with me. I would contend that the Blair government's decision to go to war was one of the first signs of the rift that was to develop between the British government and the electorate, which eventually lit the fuse of the referendum on EU membership. Recall that at  least half the British electorate in 2003 was opposed to a war which turned out to be a disaster for all sorts of reasons. Now is not the time to take over these coals again but it was the thin end of a wedge which subsequently took in the financial crash, the MPs expenses scandal and finally found full expression in the Brexit vote.

Clearly the full impact of the Brexit result has yet to play out. In that context it was interesting to attend a seminar held by the Centre for European Reform which discussed the economic and political ramifications. Regular readers will know that I am contemptuous of the claims made by the Leavers on the economics of Brexit. But we have to accept that the howl of rage expressed by the electorate is based on a genuine grievance. Indeed, as Douglas Carswell, UKIP's only sitting MP, pointed out we cannot continue to dismiss UKIP as a party which desires only to turn back the clock. As he put it, UKIP is not a party which is stuck in the past. It continues to make progress - after all, it continues to increase the number of votes it wins at elections. Former LibDem leader Nick Clegg noted that it is hardly surprising people are angry when almost 4 million voters put their cross in UKIP's box at the polling booth and were rewarded with only one MP. They got the third largest number of votes in 2015 yet  nine other parties got more seats. As Clegg said, if this was not a call for electoral reform, it is hard to know what is. 

As businesses seek more clarity over the nature of the UK's future relationship with the EU, politicians and policy wonks continue to try and puzzle over the wider ramifications. The view from Europe is that it is a great pity that the UK has gone down the path it has chosen for itself, and that this does great harm to the image of both the the UK and the EU. For the former, despite what UKIP politicians say, there is a view that the UK is stuck in a time warp, harking back to better times when Britain was stronger. But as I have warned before, the damage to the EU's image has taken a hit - if it's so great, why is a big power such as the UK leaving?  

Two things immediately struck me today, however. One is that when Brexit supporters are challenged on their view that it may not be alright on the night, they resort to the excuse that this is a residual hangover from Project Fear and that we have to get over this. To this I simply respond that financial markets are not taking you on trust. International investors have genuine concerns about the lack of detail which is forthcoming. 

The second thing which I learned, whilst presenting at an event with a lawyer today, is that businesses are genuinely unsure about the legal standing of many of the contractual arrangements which they currently have or may be about to enter into. And lawyers are only able to give partial answers, with much of the interpretation depending on politics. This uncertainty is a bad sign for business activity going forward and I fear that activity could come to a flying stop in July and August. The Bank of England has warned that some of the Brexit risks are already "beginning to crystallise." Are you listening Mr Gove?