Reckless May brings no-deal Brexit into focus

UK labour market data for January showed an extremely strong jobs market that month with employment expanding at an annual rate of 1.5%, which is the strongest growth rate in two years.

This seems to fly in the face of a recent downbeat narrative on real activity in the British economy. This downbeat narrative is primarily driven by clear evidence of paralysis in business investment activity and, of course, the ongoing decline in London property prices and weak new car sales.

One would have expected weakness elsewhere in the economy to impact negatively on the labour market but this is far from the case. One possible explanation is that in an environment where there are still reasonable levels of economic demand, particularly on the consumer side of the economy, business is not confident enough to make a long-term investment in capital, but is hiring labour in order to satisfy short-term business needs.

Obviously, a deal on Brexit would remove much of this business uncertainty and potentially unleash strong investment spending, which would in turn lend support to the labour market. On the other hand, a no-deal Brexit would take investment off the agenda and the labour market would then lose much of its current support.

This week’s letter from Theresa May to the European Council, seeking an extension of three months to the Article 50 process, seems an act of complete and utter recklessness.

In the letter, the Prime Minister pointed out that following the intervention this week of the Speaker of the House, John Bercow, a further meaningful vote could not be brought back to the House of Commons unless the agreement was "fundamentally different – not different in terms of wording, but different in terms of substance".

As a consequence she did deem it appropriate to call this meaningful vote ahead of this week’s European Council meeting. However, she remains adamant that she will bring some version of the deal back to the House of Commons, over the coming weeks, but the European Commission president, Jean-Claude Juncker has stated that he would not be prepared to engage in new negotiations, re-negotiations or any additional guarantees.

The EC is of the view that an extension beyond May 23 is not possible due to the legal complexities and obligations arising from the elections to the European Parliament between May 23 and May 26. Should Ms May manage to swing another vote next week, it is hard to see how she could possibly get the House to vote for it, having rejected it twice already.

Ms May has been adamant in declaring that she would not contemplate an Article 50 extension beyond June 30.

The actions of Ms May this week would appear to push a hard Brexit a bit closer. Of course, she could also be implying that if she loses another vote she will step down and force a general election. An election could be sufficient to kill off Brexit. One way or another, the situation remains deeply uncertain but we should probably plan on the basis that a no-deal Brexit has moved a bit closer this week.

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