An extension to the Brexit process was ultimately the only option. Britain was unable to make the trade-off between autonomy and prosperity and will need more time to think. Don’t bet on the second delay in the Article 50 process until Halloween being the last. Postponing a tough decision becomes easier the more frequently it occurs.

The consequences of delay are to widen again the available options, making both the best and worst outcomes more likely. If Theresa May’s withdrawal agreement was a compromise that did nothing more than allow an orderly departure before all the big questions had to be faced, the late running of the Brexit train increases the chances of both no-deal and no Brexit. 

A Conservative leadership election followed by a general election victory for a hardline Eurosceptic Tory prime minister would take the UK to the cliff’s edge. The option of passing Mrs May’s withdrawal agreement alongside a confirmatory referendum raises the odds on Britain remaining an EU member. 

For the UK economy, the very short-term effect will be negative. Manufacturers that stockpiled supplies in the first quarter will need to spend less in the second quarter. These swings will generate headlines, but are not important.

What matters more is the medium-term effect of delay on the attitudes of companies, households, government and trading partners. Here, evidence suggests the responses will vary. 

Business investment has fallen for the past four quarters and the new Brexit date is likely to prolong the uncertainty. Few companies have ceased replacing worn-out capital equipment — for example, van sales were 10.6 per cent up on an annual basis in March — but many sectors are exposed. This is not the time to install a new car production line in Britain or start building a speculative office development.

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There is little reason to think the consumer will follow investment lower. British consumers have had their incomes hit hard by the 2016 sterling depreciation, but have spent as if it never happened. Delaying Brexit changes nothing and, if anything, vindicates those households who thought Britain would avoid the worst. 

Whatever the Brexit outcome, the current government spending plans are not worth the paper they are written on. Under no-deal, no Brexit, a withdrawal agreement or a different government, there will be a lot more public spending than currently planned. The form of Brexit merely determines the amount of additional public borrowing that will be needed.

Britain’s trade performance is likely to disappoint for longer because partners will want to reduce the risks of commerce with an unreliable nation, where the rules of the game might suddenly change. Movements in sterling are unlikely to change this fundamental calculation.

Together, the delay to Brexit combines as a mild negative impulse for the economy, but the emphasis should be on the word mild. Investment was already weak, as was trade. Consumption is supported by low unemployment and moderating inflation, while higher government spending was always going to provide a boost in 2020.

That is the economics of Brexit. Heightened uncertainty, missed deadlines and endless negotiations and missed opportunities. In most scenarios, Brexit is the faint hiss of a slow puncture rather than the bang of a sudden blowout.

Of course, by increasing the chances of extreme outcomes, the negatives could soon bring the cliff edge back into view or end uncertainty with a decision to remain in the EU.

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Britain is united in wanting the political chaos to cease. It is not yet ready to face the truth. The only way to make it stop is to halt Brexit.

chris.giles@ft.com



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