Brexit may well cause the next financial crisis

Brexit may well cause the next financial crisis

l_rhodes July 28, 2018
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On Thursday, the Office for National Statistics released data which showed that, for the first time since 1988, householders have become a net borrower. This is worrying, especially since a financial crisis occurred without this level of borrowing – albeit due to sub-prime and Alt-A mortgages. The most worrying element of it is that, quite clearly, Sterling’s fall in value has hit people’s pockets and they are taking to consumer credit to make ends meet. The report makes clear that a rise in short-term credit is on the rise, which further supports my argument.

Inflation is rising, and people are taking to credit to make ends meet because wages are not keeping up with inflation.

Back in January, I read an article which caused me some concern. Spending was back at pre-crisis levels, because consumers had shrugged off the potential impact of Brexit. The last time spending was higher was in 2005-06, when expenditure reached £557 a week, adjusted for inflation. The Resolution Foundation said at the time: “These figures confirm that families largely shrugged off any immediate post-EU referendum jitters and went spending. This extra spending outpaced the extra level of income available to households, who turned instead to their savings and credit cards.

“More recently, rising prices and squeezed incomes have put the brakes on Britain’s big-spending households.”

90% Of new cars are bought on personal finance, mortgages are at a record high and property value nationwide is falling. This gives rise to concern in and of itself: Car finance is available without deposit, and at incredibly low rates, with a span of 5-7 years.

We are now reaching the point at which it is becoming increasingly likely – and indeed probable – that we may leave the European Union without a deal. This would leave Britain in the very unique and awkward position of being the only country in the entire world not to have a Free Trade Agreement with any other country. To put that into perspective, it would mean tariffs applied on exports (and indeed imports), with exporting businesses facing increasing costs.

This has happened because there is a group within the Conservative Party called the European Research Group who would rather possess this intangible concept (which we already have) called “sovereignty” at the price of seemingly anybody. To quote Anna Soubry, “Nobody voted to be poorer and nobody voted leave on the basis that somebody with a gold-plated pension and inherited wealth will take their job away from them.” I couldn’t have put this better myself.

The group is led by Jacob Rees-Mogg, a former hedge fund manager and a co-owner of a current one which has already moved its offices to Dublin in the event of a no deal scenario. These are people who are either misguided, mindless fanatics “faith, family and country” Conservatives such as Nadine Dorries, or, in the case of Rees-Mogg, and I have no doubt in the case of others within the ERG, people who personally stand to gain financially from a no deal scenario.

We are aware that the Government is stock-piling food and medicines in the event of such a catastrophe, so jobs would be the first thing to go. And so a financial crisis looms as a result of mass defaults on secured (a credit boom in car loans) and unsecured loans, mortgages, credit cards and payday loans.

In addition to this, the financial sector has received precious little support or ideas from the Government as to what happens to their own security within the Square Mile. I know that nobody particularly likes bankers – and I’m not fond of them either – but Emmanuel Macron, a former banker, has been making plays for banks to relocate to Paris. I don’t blame him; bankers earn a lot of money, which stimulates a country’s economy.

Returning to the statistics, the fact that we are now net borrowers should be concerning to a humble GCSE economics student.

With Barnier rejecting the Chequers deal, that is now dead. He has instead offered the idea of a Customs Union, which has already been rejected by Parliament – and more specifically, the ERG to whom Mrs May capitulated. Mrs May is now taking personal control of Brexit, and we all know what happened the last time she took personal control of a massive effort.

What is certain is that Britain cannot afford a post-Brexit recession in addition to a post-Brexit financial crisis. Parliament cannot solve this mess.

It is time to give us a People’s Vote.

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