LONDON — Ever since Prime Minister Theresa May delivered her Brexit speech in January, it has been pretty much taken as a given that Britain is headed for a "hard Brexit" — with European Single Market access traded for full control over immigration.
That is perhaps unsurprising given the prime minister explicitly said during that speech: "We do not seek membership of the Single Market."
However, according to Samuel Tombs and his team at Pantheon Macroeconomic, much of what the PM and indeed the rest of the government is saying remains empty words, and the prospect of a softer Brexit, where Britain puts in place only slightly stricter immigration controls and retains some single market access, is a very realistic possibility.
Pantheon's basic argument is that as the impending post-vote economic impacts of the vote — mainly inflation and rising unemployment — start to bite, the public will no longer see immigration as the UK's biggest problem, pushing the government away from a "hard Brexit," and toward a softer approach.
"Sterling’s depreciation has only just begun to boost inflation. CPI inflation still looks set to rise to a peak of about 3.5% later this year, from 1.8% in January," Tombs writes.
"Wage growth, by contrast, is showing no signs of shifting up. In addition, firms’ employment intentions are consistent with a flat-to-slightly-rising unemployment rate."
Tombs goes on to cite the "misery index" which adds together unemployment and inflation, noting that when it rises, generally speaking, so too does concern about the economy.
"Although concern about the economy has not increased yet, just 26% of people now say immigration is the most important issue for the Government to deal with, down from 45% in June 2016. On past form, the rise in the misery index that we anticipate is consistent with public concern about the economy exceeding immigration when the Brexit deal takes shape in the autumn of 2018," he writes, providing the chart below alongside his comments:
"We still think the Government ultimately will make a U-turn and will seek to impose only loose immigration curbs in order to maintain as much access to the single market as possible," Tombs finishes.
It is not just Pantheon's misery index that is suggesting a move away from immigration as the biggest concern for Brits, with a poll from Nielsen showing in February that more see the economy as the most important issue.
Nielsen's Global Survey of Consumer Confidence and Spending Intentions showed that the economy is now viewed as the most important issue affecting confidence in Britain, surpassing both immigration and the threat of terrorism in the fourth quarter of 2016.
Asked to provide their top two concerns for the country, 28% of Brits surveyed by Nielsen named the economy, while only 20% mentioned terrorism and immigration as their biggest worry.
Pantheon's prediction flies in the face of the market consensus right now, with most forecasters taking the government's words at face value, and it seems unlikely that May would perform such a significant u-turn. However, it is a thesis worth considering.
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