Fifty years ago this week Willie Wonka invited his young factory guests to “come with me and you’ll be in a world of imagination”. Only 5 years ago the UK  public were invited to vote for Brexit and imagine a “Global Britain”.  So, how many voters feel like the gluttonous Augustus Gloop right now? Jammed in a chocolate vacuum tube while the rest of the world winces with Wonka-like schadenfreude  – “The suspense is terrible, I hope it’ll last.” Take a look at the following developments and think about all the imagination required to skirt the awkward realities of sailing alone in a very connected modern world….

 

  • Financial Times: Almost one third of British companies which trade with the EU have suffered a decline or loss of business since post-Brexit rules took effect.

 

  • The Guardian: UK facing a summer of food shortages “because of a loss of 100,000 lorry drivers due to Covid and Brexit, industry chiefs have warned.”

 

  • The Independent: Collapse in British exports hands Republic of Ireland a trade surplus for the first time since 1922. Exports from the UK to the Republic of Ireland have collapsed €2 billion.

 

Of course, some will argue the “big picture” tells a different story. Except it doesn’t. The ultimate arbiter of economic progress is financial capital and the data is damning:

 

  • The Great British Pound/Peso: Among major currencies sterling has been the worst performer against the dollar since the 2016 Brexit vote. Bloomberg reported a 6.3% depreciation for the GBP while the Euro appreciated by 4.5%.

 

  • UK Share Prices: A weaker currency can often assist stock performance. Not so in Brexit land. On the 5th anniversary of the Brexit vote the MSCI World Index of 23 developed nations posted a 104% return over the period. The FTSE 100 delivered just 37%.

 

  • Valuations: JP Morgan’s research team have published analysis showing UK equities “trading at a 35% valuation discount to world markets”.

 

  • Financial Assets: More than $1 trillion of financial assets have moved from the UK’s financial engine, the City, to other financial centres.

 

UK assets are clearly perceived by financial trading markets as less attractive in the near term. This writer has previously written that the longer term thinking of financial players will be reflected in corporate activity – mergers and acquisitions. That market is booming. In fact, private equity buy-out activity hit an all time record in Q1 2021. However, it is less clear whether this is a good thing for “Global Britain” – selling prize assets like Morrisons, Asda, Itsu, Senior, St Modwen, John Laing etc on the cheap. Dearie me, even the Daily Mail is concerned. Alex Brummer, its City Editor, recently penned a bleating headline “ We Can’t Let These Locusts Strip Our Economy”. Perhaps Brexit dreams of “taking back control” were not all about money. Well how’s that going?

 

No amount of “flag-shagging” or “One Britain, One Nation” singing by the Boris-Youth can gloss over the structural challenges posed by the Northern Ireland Protocol and Scotland’s independence movement. It’s not just sovereignty looking a little frayed. It was striking to read former Downing street aide, Dominic Cummings, suggest the opposition parties in Westminster should “kick the Tories up and down the street on violent crime”. That’s quite the reversal for the traditional “law and order” party but then again the law is enduring a rather poor run of UK government exceptionalism.

The ongoing verbal gymnastics displayed by various government ministers in justifying a breach of an international agreement they have only just agreed and signed up to(NI Protocol)  is not just infuriating Brussels. The Biden administration in Washington and international capital markets are wondering how the UK government can be trusted going forward. And, the UK’s farmers and fishermen might be asking similar questions. But perhaps there is a much bigger question…..

 

There is nothing wrong with a country wishing to manage its trade and geopolitics alone. British history could indeed inspire but the world has changed dramatically since the days of Empire building. This is a hyper-connected world and begs the question whether trade and geopolitical exceptionalism is a realistic strategy? I am reminded of  a recent conversation with a senior executive of a Big Tech company. We were discussing barriers to entry and competition in the corporate world. His view was that technology and commercial ecosystems can be built so quickly  in a digital world that now there really is only one barrier to entry – scale, global scale.

 

The UK ‘s population is just 65 million. The EU market contains 450 million consumers and the British government has signed the first trade agreement in history where the outcome is a definitive reduction in trade activity. Just as Apple, Google and Amazon get the best trading terms because of their economic weight, it is logically inconceivable that any trading bloc or large country will sign up to an agreement with 65 million people and better terms than those in place with a 450 million strong market. The thinking that a nimble agile small economy competitor is going to receive more competitive terms than monster single market ecosystems is Wonka bonkers, and decades out of date.

 

Wetherspoon’s CEO,Tim Martin, won’t be the only Brexit cheerleader forced to meet economic reality with a comic u-turn appeal for “more liberal immigration” to assist the staffing of his pubs. Expect more of  this jaw-dropping revisionism. Meanwhile, the denial of the daily realities of Brexit by the likes of Gove, Redwood, Rees-Mogg, Frost and Johnson is a tedious attempt to keep leave voters on board. Stunningly, the most recent YouGov poll shows less than half of Leave voters(45%) think Brexit is going well. Oh well, at least there are £200 million plans for a new national flagship “to promote British trade and industry around the world”. Dreadnoughts, 1914 and irrelevance spring to mind but the shifting of Brexit views will be attritional and bitter.  Willie Wonka had a sweeter ending….

 

“We’ll begin with a spin

Travelling in the world of my creation

What we’ll see will defy explanation”   

 

                                                          Willie Wonka & the Chocolate Factory

                                                                                         June 30th 1971