Sunak’s Britain is starting to think about Brexit

(Bloomberg) — Even after years of division and vitriol, it seems Britain still needs to talk about Brexit.

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More than six years after voting to leave the European Union, the UK is facing a protracted recession, a deep cost-of-living crisis and a labor shortage. Last week’s fall statement ushered in years of higher taxes and government spending cuts.

The gloomy forecast has reopened the debate over Brexit, formerly the deadly third prong of Conservative party politics, which many believed ended for good with the signing of a free trade deal at Christmas 2020.

Days after being forced to accept sweeping changes in fiscal policy, Brexiters faced a Sunday Times article last weekend saying senior figures in Prime Minister Rishi Sunak’s government are seeking a closer “Swiss-style” relationship with the European Union.

Read more: UK Brexit debate returns with Sunak pressuring immigrants

The language angered hardliners who oppose anything that trades Britain’s newly won regulatory freedoms. But the very fact that the possibility was broached publicly — and attributed to a senior government source — is a departure from Boris Johnson’s bombastic “cake and eat it” era or the ephemeral low-tax vision of his successor, Liz. Truss.

Chancellor of the Exchequer Jeremy Hunt has privately said the UK should push for a closer trade deal with the EU, in line with the Sunday Times report, several senior government officials familiar with his thinking said. At the first sign of dissatisfaction with Hunt from Sunak’s camp, a senior official criticized the chancellor for speaking too loosely.

A spokesman for Hunt declined to comment. Hunt’s views have been over-interpreted by the media, people familiar with his mindset said.

Changing times

Yet Hunt’s tone reflects a shift in public attitudes, with a new poll overseen by British election guru Professor John Curtice showing Britons rejecting Brexit by 57% to 43%. Last week, YouGov Plc reported that a record 56% of respondents now believe Brexit was wrong. About 19% of those who voted for Brexit now regret their choice, YouGov said.

“There’s been a gradual, slow erosion of support for Brexit,” Curtice, a professor of politics at Strathclyde University, said in an interview.

The current government – ​​which has been in power for 12 years – is simply not very popular anymore, Curtice noted, and it has a demographic problem. “With every cohort of 18-year-olds entering the electorate, there are more people who are pro-EU.”

For now, however, Brexit continues to be divisive to force the prime minister — a longtime Brexiter who supported Vote Leave in 2016 — to speak out on Monday.

“Under my leadership, the UK will not pursue any relationship with Europe that is dependent on compliance with EU law,” Sunak told the Confederation of British Industry’s annual conference. Regulatory freedom, he said, is “an important opportunity of Brexit”.

Sunak’s clear and quick refutation was applauded by David Frost, who served as Boris Johnson’s chief negotiator and called Sunak’s comments “welcome and reassuring”.

Others were less convinced. In a message to the Conservative MPs’ WhatsApp group on Sunday, viewed by Bloomberg, former cabinet minister Simon Clarke told colleagues that the Treasury has a “long-held ambition” to bring the UK in line with the EU rules to maximize the economic benefits of access to its markets.

Parliamentary arithmetic also matters. Many Conservative MPs elected in 2019 are pro-Brexit, making new rapprochements with Brussels unlikely before the next election, scheduled for January 2025, several Tories said. Brexiteer MPs would try to oust Sunak if he tried, one MP claimed.

Yet the European Research Group of die-hard Brexiters, a thorn in the flesh during Theresa May’s prime ministership, is no longer the force it once was. Former ringmaster Steve Baker is now a minister, and last month the group couldn’t agree on who to support for prime minister.

Few expect a dramatic policy change anytime soon. Those involved in ongoing talks about Northern Ireland’s post-Brexit status on both the UK and EU sides were surprised by the reports, with an EU diplomat saying a Swiss-style settlement is not being offered. Two EU sources told Bloomberg they believed the proposal was designed to test the appetite in the UK – and within the Conservative Party – for deepening the economic relationship between the UK and the EU.

Explainer: why Northern Ireland keeps the UK and Europe at odds

Insecure times

That question becomes increasingly relevant as the economic backdrop continues to obscure and pundits are breaking the cover to speak out on the fallout from Brexit.

Last week Michael Saunders, former Bank of England interest rate setter, told Bloomberg TV that the “British economy as a whole has been permanently damaged by Brexit”.

Current BOE policymaker Swati Dhingra told lawmakers on Wednesday, “It’s undeniable now that we’re seeing a much bigger slowdown in UK trade compared to the rest of the world.”

According to the Office for Budget Responsibility, Brexit will reduce UK GDP by 4% over the longer term. Analysis by Bloomberg Economics shows that the UK lagged the trade performance of other major countries before the pandemic – and has not fully shared in the recovery since then.

According to OECD data, economic growth is stronger than in Italy and Germany. But when measuring living standards in Europe’s major economies, only Spain underperforms the UK.

The markets have also suffered. The British pound is down 10.5% against the trade-weighted currency basket, 20% against the dollar and 11% against the euro. Earlier this month, the Paris stock exchange passed the London Stock Exchange in market value. In 2016, British equities were worth a combined $1.5 trillion.

The volatility has unsettled companies, which struggle with four-decade inflation while struggling to recruit in a tight labor market.

Speaking at the CBI conference, Sarah Pollard, chief financial officer of PZ Cussons Plc, said Brexit had a “very clear impact on access to talent and consumer confidence”. A closer “link to Europe” would create more “resilience and resilience” in the economy, Pollard said.

–With help from Emily Ashton, Sabah Meddings, Kitty Donaldson, Andrew Atkinson, and Jorge Valero.

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