Mr Phillips is resting

Markets are increasingly concerned that central bankers may be about to take away the punch bowl rather earlier than they had previously anticipated. The Bank of Canada was the latest central bank to tighten policy, raising rates by 25 bps this week for the first time since 2010. There is also increased nervousness regarding the policy intentions of the ECB and BoE. But whilst there are good reasons for taking away some of the emergency easing put in place in the wake of the financial crash of 2008-09, it is proving much harder to justify tightening on the basis of inflation than most had expected.

This is a particular problem for the Fed which has nudged up the funds rate in four steps of 25 bps over the past 18 months, but is reliant on signs of higher inflation to justify ongoing policy normalisation. US core CPI inflation, which was running above the Fed’s 2% target rate last year, slipped back to 1.7% in May and June and is thus at the bottom end of the range in place since 2011. Wage inflation has also picked up, but here too the acceleration has been modest, with hourly earnings running at an annual rate of 2.8% in June which is only 0.5 percentage points higher than the average of the last three years.

For an economy which is running close to what appears to be full employment, this might appear rather surprising. But the headline unemployment rate, currently 4.4%, understates the degree of slack in the US labour market. The so-called U6 rate which adds in “marginally attached” workers – defined as “those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months” – is still at 8.6%. This is slightly higher than the previous cyclical trough in 2007 when it reached 8.0%, and significantly above the low of 6.8% recorded in October 2000. Arguably, therefore, the jobless rate can still fall a little further before wage and price inflation starts to become more of an issue.

The UK shows a similar – indeed, perhaps more extreme – picture with the unemployment rate in the three months to May at its lowest since 1975 whereas the rate of wage inflation, at 1.8%, is a full percentage point below that recorded last November. As in the US, there is a significant amount of spare capacity in the labour market. Currently, 12% of those working in part-time employment are doing so because they cannot find full-time employment. Whilst this is down from a peak of 18.5% in 2013, it is still higher than the 8-9% range recorded before the recession of 2008-09 and points to a certain degree of involuntary underemployment. This in turn suggests that there have been structural changes in the labour market which have impacted on the traditional relationship between headline unemployment and wage inflation.

For many decades, economists have focused on the negative relationship between wage inflation and unemployment first postulated by Bill Phillips in the 1950s. In its simplest form, this suggests that policymakers face a trade-off between unemployment and inflation. In practice, the relationship holds only in the short-term, if at all. What is notable, however, is that in the UK and US there has been a flattening of the curve in recent years, suggesting that any negative relationship between wages and unemployment is even weaker today than in the past. 

This is illustrated for the UK in the chart below, based on an idea presented in Andy Haldane’s recent speech entitled “Work, Wages and Monetary Policy.” The chart shows the trend derived from a linear regression of wage inflation on the unemployment rate over various periods. Two features are evident: Most obviously, the line has moved down reflecting the fact that over time inflation in the UK has fallen. But it is also notable that the slope of the line has become shallower. In other words, UK wage inflation has become less sensitive to changes in the unemployment rate. To illustrate the implications of this, we assess the wage inflation rate consistent with an unemployment rate of 5.5% and how this would change if unemployment fell to 4.5% (current levels).

The results are shown in the table (below). Simply put, an unemployment rate of 5.5% would be associated with wage inflation of 14% on the basis of the relationship over the period 1971-1997, falling to 4.1% between 1998-2012 and just 2.1% on the basis of the data for 2013-2016. But what is also interesting is a one percentage point fall in the jobless rate to 4.5% has a much smaller impact based on recent years’ data than in the pre-recession period. For example, this might have been expected to produce a 0.9 percentage point rise in wage inflation over the 1997-2012 period compared to a 0.5pp rise based on recent data.

Space considerations preclude a look at the reasons for the weaker sensitivity of wage inflation to labour market conditions. It may be the result of factors such as a lower degree of unionisation; the more widespread use of zero hours contracts and the rise of the gig economy, all of which have raised the degree of slack which the headline unemployment rate does not capture. But what the analysis does suggest is that policymakers can afford to spend less time worrying about the impact of low unemployment on wage inflation. There may be a case for higher interest rates but it is not to be found in the labour market.

As a final thought, I am struck by certain parallels with Japan. Following the bursting of the bubble economy, the Japanese authorities failed to spot the structural factors which led the economy to the brink of deflation, notably an ageing demographic profile which prompted a switch towards saving rather than consumption. The one factor we might be missing today is the impact of automation, which threatens a significant substitution of capital for labour and which could put downward pressure on the relative price of labour. I would thus not be in a hurry to raise interest rates to counter a wage inflation threat which has so far failed to materialise.

Time is running out

I noted three days ago how pro-Brexit campaigners appear to be distancing themselves from the whole idea. Since then, more evidence has come to light suggesting that British businesses are not being listened to by government. This matters. Many people might see businesses as insatiable users of human resources, chewing people up and spitting them out at a whim. But they are the providers of jobs and income for the vast majority of us. If businesses are not going to get a Brexit which works for them, in whose name are we doing this? A Brexit which does not work for business will not work for the UK economy.

Only last week, the CBI called for the UK to remain within the single market and customs union until such times as the shape of the final deal was clear. But British government officials torpedoed that option because, according to observers present, Brexit Secretary David Davis fears a political backlash if the UK is seen to be backtracking on its commitment to leave. He is concerned that politicians would be judged harshly if it opts for what can best be described as the Hotel California option – having checked out it, it can never leave. In my view this is to misread the domestic political runes. And it would not be the first time this year that the Conservatives have done so. Indeed, Davis is said to have been instrumental in persuading Theresa May to call the spring election, so I am not sure I would necessarily trust his political judgement. Moreover, surveys suggest that the electorate is not in favour of a hard Brexit. The election was a warning shot across the bows of a party which campaigned on the basis of “no deal is better than a bad deal” and was punished at the ballot box. And if “taking back control” was so important to the electorate, why did UKIP – the party which pushed so hard for it – take such an electoral hammering?

This morning’s story from The Observer warning that the UK cannot expect any help from German business in securing a favourable Brexit deal is further evidence of the delusions under which too many UK politicians are operating. Senior representatives of German industry bodies have repeated what I (and many others) have said all along, namely that the main objective for the EU is to maintain the integrity of the single market. A few months back I had a meeting with a group of senior German politicians, some of whom told me very firmly that Germany would not go out of its way to help the UK if it meant sacrificing relationships with other EU members. I am sure they have said the same things to their British counterparts, but too many British politicians appear to have selective hearing (or should that be understanding) when it comes to Brexit issues.

It is this attitude which brought to mind the Bagehot column in The Economist a couple of weeks ago. The article criticised the government for dealing with the needs of business in an amateur way and highlighted that the only realist is Chancellor Philip Hammond, who “is a grown-up in a political playpen that is stuffed with children. The chief claimant to the throne, Boris Johnson, is the most childish of all. Bumptious and bungling, he wants to grab the shiniest prize for himself for no other reason than that it is shiny. Other claimants also have problems with maturity. David Davis, the Brexit secretary, is a vainglorious contrarian who … habitually underestimates the damage a bad Brexit might cause ... On the other side, Mr Corbyn is an extreme case of arrested development. He is a man-child leading an army of disgruntled youths, a professional protester who has reached his late 60s without ever having to make adult decisions about allocating limited resources, let alone creating them in the first place.”

As it happens, I am pretty sure that the government will be forced to cave in on its Brexit negotiating position. Despite the position espoused by Davis earlier this week, The Observer reports that the government is warming to the idea of a transition deal. Perhaps they are waiting for the EU27 to offer some form of olive branch which will allow them to change course. Perhaps the EU27 is prepared to face down the UK in order for it to change of its own free will. But in an economy where real incomes are falling thanks to the rise in inflation triggered by a fall in the pound, and where consumer sentiment has fallen sharply back to immediate post-referendum lows, I suspect the electorate is in no mood to pay the economic price for the government’s shenanigans. Politicians need to get real – and fast – because in effect they have a year to finalise the arrangements before the EU’s deadline of autumn 2018.  The sound you hear is the clock ticking …

The great Brexit backtrack

There is an increasing sense that many of those people who promoted the Brexit cause last year are beginning to back away from their position. Two days ago I reported the comments by the director of the Vote Leave campaign who suggested that leaving the EU might turn out to be an “error.” One of the few economists to support Brexit, Andrew Lilico, noted yesterday on Twitter that “I'm much more pessimistic about Brexit myself since the General Election.It's the Election that changed that.” My response to that is that the election only changes the tactics of the negotiations but the strategy of Brexit itself was – and is – misguided. Finally, Treasury officials are said to have written an unpublished paper challenging the Department for International Trade to prove it can line up free-trade agreements with non-EU countries that can outweigh the loss of European trade associated with leaving the customs union.

Frankly, it is all beginning to look like the car crash which I warned it would be all along. Far too many of those responsible for setting the Brexit bonfire alight in the first place departed the scene pretty quickly when they realised the magnitude of the task ahead. Nigel Farage has resorted to his role as a sniper from the sidelines; Boris Johnson and Michael Gove backed out of their prime ministerial challenges when it became evident that neither of them was likely to win and David Cameron (at whose door much of the blame should be laid) lectures the government about austerity from his well-paid position on the international lecture circuit. The fact that apart from David Davis, nobody in government appears willing to take ownership of Brexit, speaks volumes. It is hard to believe that nobody in government did not see any of this coming – the economics profession warned long and loud – but given the apparent level of disorganisation within government and the civil service, you do have to wonder.

With the Article 50 clock ticking and no indication of progress on the things which matter to business, they are increasingly having to make their own arrangements. The financial services industry in particular is not going to wait around for government to make a decision. It looks increasingly likely that the passporting arrangements which allow EU banks to conduct cross border business, will be a casualty of the UK decision to withdraw from the Single Market. Foreign banks operating in London will in effect be treated as third country institutions and thus have to apply for a banking licence to continue operations.

It takes up to 12 months to go through the application  process for a banking licence, and around six months to conduct the preparatory work. The head of the Financial Conduct Authority today called on the government to clarify before year-end what form of transitional arrangements will be put in place to allow financial services to continue operating. But it really does need to act fast: On the basis that the UK will leave the EU in March 2019, as things currently stand this means that banks will have to begin their preparations this autumn.

Many banks are simply not going to wait around. Deutsche Bank is reported to be ready to relocate many of the banking books currently operated out of London back to Frankfurt, and they are not alone. Three Japanese institutions, Daiwa, Nomura and Sumitomo, are applying for licences to operate businesses in Frankfurt and some big US institutions are reported to be raising their German headcount. This is the business end of Brexit – jobs which might otherwise have remained in London will be transferred elsewhere. Banks, in particular, could find themselves on Brexit day unable to conduct business in the EU if they do not make plans now.

Whilst at present the numbers discussed publicly are small, the concern is that this could mark the thin end of a bigger wedge. The City of London contributed 11.5% of total government tax receipts in fiscal 2015-16, and business not conducted in London and jobs transferred elsewhere represents tax revenue which does not flow into the UK government’s coffers. In Philip Hammond’s words, voters did not vote to make themselves poorer by backing Brexit. But at a time when the government is under pressure to ease  back on austerity, allowing high value added business to slip away because government cannot get its act together will end up doing just that.

Getting our facts right

A few weeks ago I was involved in a debate with a young analyst who refused to believe that exchange rates are driven by factors other than trade deficits (not current accounts, simply the flow of trade in goods). After fruitless attempts to try and engage in some form of intellectual debate, only to be met each time with the stock response “I disagree,” I simply shut down the conversation. This is not my preferred mode of interaction – far from it. We learn from discourse and I like to think I am open to changing my mind on various issues if the facts prove I was wrong.

It was in this vein that I read with interest a blog piece by Noah Smith entitled “Is economics a science?” "Real" scientists would treat the question with contempt and indeed I never try to claim that it is. But what economics tries to do is measure and draw inference from observation. In that respect it employs scientific methods even if it does not always result in scientific conclusions. One reason why the theory and practice differ so much is that the logical economic answer is not always politically acceptable. Economics also has deep philosophical roots which colour the prior beliefs of many practitioners. Indeed, one of Adam Smith’s noted works - admired by many on the political right - was a Theory of Moral Sentiments published 17 years before the Wealth of Nations. It is perhaps these philosophical underpinnings which explain why adherents to the Austrian school of economic thought, which also derives from a branch of philosophy, eschew empiricism in favour of a priori deduction in order to reach a conclusion.

I could not help thinking during the Brexit debate last year that many of the leading Brexiteers were adherents of free market economics of the kind espoused by the Austrian school. It therefore does not surprise me that many of their arguments were not backed up by empirical analysis. I have also been struck by the apparent shift in tone of those who 12 months ago supported Brexit. Only today, the campaign director of Vote Leave, Dominic Cummings, admitted that “in some possible branches of the future leaving will be an error”  (let me correct you there, Dominic. In pretty much all branches of the future leaving will be an error). Cummings appears to be directing much of the blame for this on the way it has been handled by Downing Street. Personally, I prefer the explanation that those responsible for promoting the cause did not do their homework and failed to think through the implications of their actions.  In other words, they adopted a very unscientific approach.

However, we also have to be very careful when making arguments based on data alone. One of the issues which the academic world is currently very concerned about is the accuracy and replicability of much (non-economic) scientific work. Only last week, the president of the Royal Statistical Society, Professor Sir David Spiegelhalter, pointed out that public trust in scientific conclusions is being undermined by a “failure to adhere to good scientific practice and the desperation to publish or perish.” As Spiegelhalter points out, most scientists do not overtly falsify their data, but they sometimes play fast and loose with statistical inference (credit should also go to The Economist for having made this point repeatedly in recent years).

Aside from problems arising from the accuracy of results, economics suffers from another problem due to the quality of the underlying data. Although I do believe that economic statisticians are free from political bias, economic data often suffer from sample bias due to the fact that it is constructed by drawing population inferences from a relatively small sample. It is often an approximation to reality at best. A case in point is UK labour force data, where a tightening of the criteria for benefit eligibility means that many people whose fitness for work is questionable, have been reclassified as part of the labour force. UK immigration data are also not fit for purpose either, despite the fact that they form a key element in the government’s Brexit strategy (amongst other reasons, because the UK does not require migrants to register after arrival, the figures are compiled from the International Passenger Survey, which has numerous methodological shortcomings).

But for all that, a debate based on some form of data is always more informed than one based purely on belief and supposition. As the Canadian academic Marshall McLuhan pointed out, “a point of view can be a dangerous luxury when substituted for insight and understanding.” A year on from the Brexit referendum, that rings all the more true.

Helmut Kohl's legacy

A memorial service was held in Strasbourg yesterday for former German Chancellor Helmut Kohl, who died on 16 June. Whilst his death briefly made headlines in the British press, coverage of what was in effect a European state funeral barely made a splash on this side of the channel. That says a lot about the way the British media thinks of European issues. Kohl was, after all, praised across the continent for being the lead architect in the construction of the EU – an institution which the British electorate rejected 12 short months ago.

Politically, Kohl was a unifier: In addition to his role on the European stage, he will forever be remembered as the Chancellor who reunited Germany. But as the German media has highlighted, one of the great ironies is that he never managed to unify his family: Even in death, he remained estranged from his two sons. Nor, despite the eulogies, did he share Angela Merkel’s vision, particularly with regard to the handling of the euro crisis. Kohl was a historian with no interest in economics. His was the politics of the grand vision, regardless of the cost. Very few politicians of the post-war era would have attempted a project as ambitious as German reunification. But no reputable economist agreed with the decision to convert the Ostmark to the Deutschmark at a rate of 1:1 which gave East Germans a short-lived income boost but which later wiped out the eastern economy.

Many German economists also believe that his push to introduce the euro was badly handled. The decision to introduce a pan-European currency without the appropriate leadership structure in the EU, and without a body to direct common political and economic policies for the euro zone, means that the single currency effectively remains little more than a glorified fixed income mechanism. It was created on the basis of the competitive situation which prevailed in the 1990s, and the pain associated with maintaining competitiveness was always going to require significant domestic adjustment: Even the European Commission was clear about this in the mid-1990s.  As Die Zeit put it, “a currency union was created that only worked when the sun shone.  And when a storm, in the form of a financial crisis, came along, Mr. Kohl’s peace project became the nucleus of the largest European crisis since the war.”

Undoubtedly, Kohl’s solution to the Greek debt crisis would have been to dip deeper into German pockets to find a financial solution. It might even have worked – for a while. But it does not detract from the fact that there are significant faults in the construction of monetary union which need to be fixed. Although Kohl was not honest with his own electorate about the costs of monetary union – living in Germany at the time, I was acutely aware of that – we cannot pin all the blame for the euro zone’s ills on his shoulders. Politicians in other countries signed up willingly to the euro without realising that their own economies would have to bear a far greater share of the adjustment burden than Germany.

The election of Emmanuel Macron as French President has been hailed across the continent as a chance to rebuild the Franco-German axis that drove the European project forward during the 1980s and 1990s. Macron has proposed a common fiscal policy, a joint finance minister and the completion of banking union, and surprisingly he has been given a sympathetic hearing in Berlin. But we cannot so easily turn back the clock to the halcyon days of Kohl and Mitterrand. The world has changed, with the rise of Asia having permanently altered the global economic landscape. Nor is it so certain that the people of Europe today share the vision for their continent which Kohl espoused. His was a vision rooted in the past, designed to ensure that the horrors of the first half of the twentieth century could not be repeated. That was, and is, a laudable goal. But the survey evidence suggests that European electorates remain sceptical of the need for further integration.

Europe in early 1995, after Kohl’s fourth election victory, felt like a good place to be. The EU was a smaller, more manageable institution with just 15 members. It was moving towards convergence at a pace which felt comfortable and although progress towards a single currency was ongoing, there were widespread doubts that it would be operational by 1999. It felt more like a warm and fuzzy aspiration which made the federalists feel good yet was far enough away not to worry the sceptics too much. In my view, that was Kohl’s real achievement: He led the horse to water. It is unfortunate that the purity of the water did not match up to expectations.

Central banks face an inflation dilemma

Over the course of recent weeks there has been a shift in the message communicated by monetary policy makers. The monetary authorities on the other side of the Atlantic have long been ahead of their European counterparts, with the Fed having raised rates four times since December 2015 and three times in the last six months. But it has now gone further and announced in mid-June that it “expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.” A week prior to that the ECB changed its assessment of the balance of economic risks to “balanced” rather than “tilted to the downside” whilst only last week, Norges Bank removed its previous guidance that interest rates could be cut this year. Also this month, the Bank of England only narrowly voted to hold rates at their all-time low of 0.25% with three members of the Monetary Policy Committee pushing for a 25 bps rate hike.

The narrowness of the BoE vote came as a surprise with the dissenters concerned that inflation had overshot relative to expectations, reaching a four year high last month, at the same time as the margin of spare capacity in the economy has clearly diminished. My initial reaction to this reasoning was that it was flawed: Inflation has surged largely because of the impact of currency depreciation and so long as this does not impact markedly on inflation expectations, which leads to faster wage growth, the BoE may simply have to swallow the problem. Indeed, with wage growth slower today than before the EU referendum, higher interest rates at a time of falling real wages will not do anyone any favours. That said, with the unemployment rate close to the BoE’s estimate of the NAIRU, such concerns are understandable.

My own view is that the uncertainties surrounding Brexit will suffice to keep UK inflation expectations in check for some time to come. Indeed, across much of the industrialised world, it is proving difficult to drive up inflation: In both the US and euro zone inflation is struggling to reach the central bank’s 2% target – a trend which will not be helped by the recent decline in oil prices which has supported headline inflation in the past year. Although central banks have a mandate to control inflation, and in many cases have to meet particular targets, it is difficult to explain to the wider public that there is no automatic link between price growth and interest rates – just as there is not, and never has been, one between inflation and money supply growth, despite the best efforts of many politicians and (some) economists to convince us otherwise. As if we needed proof, consider the case of Japan where despite running a balance sheet equivalent to 90% of GDP – almost four times that of the Fed, ECB or BoE – inflation has only exceeded the BoJ’s 2% target for three months during this century (once we strip out the distortionary effects of consumption taxes, see chart).

There are numerous reasons why inflation today is much lower than during previous periods when prevailing economic circumstances were similar. A much more globalised economy, in which value chains stretch across international borders has been one of the key factors holding down price inflation over the past decade. This has been accompanied by technological change which has depressed wage expectations. In effect, the pricing power of labour has been reduced as wages are increasingly set according to international conditions rather than those in local labour markets. Moreover, as the BIS reminds us in a message that too many economists often overlook, “wage growth is not necessarily inflationary: whenever it is supported by productivity gains, it will not lead to rising production costs.” And as I never tire of pointing out, although the UK’s productivity record has been dismal since the great financial crisis, it has still been stronger than real wage growth.

In an environment where the link between the domestic economy and wages has weakened, this makes it difficult for central banks to justify raising rates based on the threat of more rapid potential wage growth. But low interest rates have contributed to the asset bubble which has forced – or perhaps facilitated – investors to take risks in order to generate faster rates of return. Some form of monetary tightening is thus desirable. It is for this reason that the BoE today announced that it will raise banks’ countercyclical capital buffer – a measure of mandatory additional capital holdings – from zero to 0.5%, with a view to raising it to 1% in November in a bid to curb excess credit growth.

I must confess to some mixed feelings on the situation we now find ourselves in. On the one hand, central banks are concerned about the impacts of low interest rates on credit and asset price growth. Yet on the other, they wish to ensure financial stability which appears to be at odds with the current loose monetary stance. The case for higher rates based on price inflation or wage growth is weak. But there is an argument to suggest that the wider impacts of running a loose monetary policy require some tightening. For the moment, the likes of Norges Bank and the ECB can get away with merely talking about it. The BoE fiddles around the edges by adjusting macroprudential measures. But before long, they may all be forced to follow the Fed – everyone does in the end.

(Un)happy anniversary

They say that time flies as you get older. That must make me positively ancient, as I can so vividly recall the events of 23-24 June 2016 as if it were yesterday. I am referring, of course, to the EU referendum. The effects of that vote have been socially and politically profound, and although the economic impacts have so far been modest they will make their presence felt over time.

For a vote which was designed to heal divisions within the Conservative Party over Europe, it was a catastrophic failure. It still threatens to tug at the unity of the UK: even though the pressure for a second independence referendum in Scotland has diminished in the wake of the election, it has not gone away completely and the position of Northern Ireland within the union may be called into question in the longer term, even though a split appears unlikely in the near future. There is a clear split between the aspirations of younger and older generations, as evidenced by voting patterns last June and again in the recent general election. And the intervening twelve months have done nothing to lessen the differences of opinion between those who wish to leave the EU and those who wish to stay. In short, the referendum resolved nothing – as I never thought it would. Indeed, I have always believed that whatever the outcome, the UK would remain semi-detached members of the EU and I stand by that view today.

Regular readers of these pages (and thanks to you all for sticking with it) will know that my anger at the Brexit issue is less about the result itself than about the lies used by self-serving politicians to serve their own ends, aided and abetted by sections of the media which have an ideological agenda. Politicians simply invented economic facts which to me is unacceptable (the most famous of which was the claim that leaving the EU would allow the government to direct an additional £350 million of extra resources per week to the NHS). They lied on immigration by failing to point out that more than half of the immigrants into the UK over the past decade came from non-EU countries, where the UK has control over its borders (they omitted to mention that a large number of these non-EU immigrants were students  who support British universities).

But the biggest lie of all was that the EU needed the UK more than it needed the EU and that the EU27 would beg to do a deal which would give us exactly the same conditions as we enjoyed previously, but with extra flexibility to do great deals with non-EU countries. None of these assertions was backed up by evidence. Indeed, the only economic study showing evidence in favour of Brexit was based on assumptions so heroic it makes Superman look like a coward (notably the idea that the EU would be forced to halve the levels of protection on imports from outside the bloc – see here for further detail).

The likes of Boris Johnson, Nigel Farage, Michael Gove, Daniel Hannan and Matthew Elliott portrayed themselves as economic liberators who could lead the UK to the sunny uplands of a brighter economic future. I note that none them studied economics or business and only Farage has any claim to a business career. Nor is there a scientist amongst them who appears to recognise the value of hard evidence. On the basis that the dictionary definition of treason is “the crime of betraying one's country”, those who promoted the economic case for Brexit are closer to traitors than liberators.

As for where we go from here, that is all still up in the air. The government has been forced to backtrack on many of its initial Brexit positions. Theresa May herself was nominally a Remainer who appears to have become a champion of hard Brexit; parliament was originally to be denied a vote on the terms of the Brexit deal once it had been agreed with the EU27 (now it will be allowed a vote); the government also initially planned to invoke Article 50 without a parliamentary vote but was forced by the courts to do so and a suggestion that that companies would have to publish figures on their number of foreign workers was also quickly dropped. Add in the fact that only this week the UK quickly caved in to EU demands on the sequencing of the Brexit negotiations, and large parts of the government’s manifesto did not make into the Queen’s Speech (meaning that it will not be enacted during this parliamentary term), and you have to wonder how many other red lines will be crossed.

A survey published in The Times this morning (here for an overview ) suggests that a 58% majority wants a deal in which the UK continues to have free access to trade with the EU whilst allowing EU citizens the right to live and work in the UK. Only 42% preferred the alternative of full control over immigration but British businesses having no access to the EU single market. This was actually the choice we were faced with a year ago, only it was not put this way. Bottom line: There is no appetite for a hard Brexit, and it is becoming increasingly apparent that the government misread the message delivered by the electorate last year, which I maintain was more a howl of rage than a desire to pull up the drawbridge.

My preferred solution is that the UK does not leave the EU at all. I don’t wish to sound like a disaffected Remoaner but it is not impossible that if the negotiations drag on for a decade or more, resulting in a second referendum given that many people will have forgotten why the UK voted to leave in the first place, the generational shift in the electorate may produce a different result. The sensible strategy from the EU’s perspective would thus be to offer a deal in 2019 which the UK finds unacceptable but be willing to extend the negotiating period indefinitely. If Theresa May’s government wishes to do a deal more quickly than that (and it does) I suggest that the EU offers the UK access to the single market at a price which is lower than that which it currently pays but with correspondingly reduced rights. Indeed, I have made this point before but have since read that the German government takes a similar view.

As for where we will be in a year’s time, I suspect not much further forward. If the EU plays hardball on the Brexit bill and the UK refuses to back down, the clock will be running down without any tangible sign of progress on the trade deal which the UK so badly wants. This is all so unnecessary because it’s self-inflicted and was predictable all along. For those who led the Brexit campaign, I say only this: Judgement Day is coming.