Sterling jumped for joy in the immediate aftermath of the kicking given to Theresa May by the UK's High Court. The insistence that the only body that can trigger article 50 is parliament, not the prime minister, was, according to most constitutional experts, sound in law and unlikely to be overturned by the Supreme Court. We shall see. Brexiteers want us to ignore the opinion of experts but top lawyers are saying the government's case is a weak one. The peculiarities of the UK constitution – most obviously: it doesn't have one – seem to imply that parliament is sovereign and nobody else is, not even the people via a referendum. That just happens to be the law in the UK and the courts are simply doing their job.
Brexiteers who wanted to "take back control" and restore power to the UK parliament and courts are now complaining about the courts doing their job. An ex-leader of the Tory Party voiced anger about about the courts "interference" with the sovereignty of parliament. Prominent Brexiteers seems to want only to confirm the suspicion that they are simply bonkers: Brexit was nothing if it was not about parliamentary sovereignty and all the courts did was to reaffirm the primacy of parliament.
Ideological plot
The Daily Mail published photographs of the three judges involved in the high court hearing, accompanied by the banner headline "Enemies of the people". Other tabloids have similar front pages. The Daily Telegraph, nominally a "quality" broadsheet, declared that it is all "a plot to stop Brexit" and it is a case of the "judges versus the people". It was only a few months ago that a sitting MP was murdered on the streets of England. The British press – and not just the tabloids – have a lot to answer for. One leading commentator likened the tabloids to sterling: just as you think they can't sink any lower they do.
It is the dramatic turn in the political and social climate that is most disturbing. Hate crimes have risen and immigration has been placed at the centre of the Brexit debate: an explicit decision by the prime minister, one that she was not obliged to make. It won't be just Mark Carney, the governor of the Bank of England, who will think that Britain is losing its reputation for tolerance. His decision to head home early may be the start of a wider trend. Skilled immigrants often have choices about where they live and will undoubtedly factor in the more hostile climate. Why live where you are not welcome? The immigration numbers are set to fall but not in the way the Brexiteers seem to want.
Sterling’s response to the high court ruling should not be interpreted as a rethink about whether or not Brexit will happen. It’s more subtle that that. Markets are reconciled to Britain leaving the EU and now need the details. What is a hard Brexit going to look like? Could greater parliamentary scrutiny mean that the UK ends up staying in the single market? Only when the details are known will markets be able to weigh the consequences.
Given the very clear verdict and language used by the courts – some lawyers think that the government’s case would have failed under all circumstances – it is tempting to think Theresa May must have been advised accordingly and is playing a game. Somebody must have told her that what she planned to do was illegal. Perhaps this is the excuse she needs to deliver a softer Brexit, via a possible general election. And all that tough talk was just to placate or even wrong-foot the lunatic wing of her party. In which case, a more market-friendly version of Brexit beckons.
Deprived regions
The UK economy, unlike that of the euro area, works as a proper monetary union. The successful bits transfer money to the deprived regions. That’s basically the southeast of England to pretty much everywhere else. That’s Remain voters giving cash to Leavers, something that might not be as sustainable going forward. First, the typical Remain taxpayer in London and its immediate environs might discover a German reluctance to bankroll the more feckless part of the union. Second, the money might not be there, at least to the same extent. That’s what all those foreigners going home and lower growth will mean.
So what happens next? Yes, some of us got the immediate recession forecast badly wrong but that doesn’t mean the UK economy is not heading, more slowly than we thought, for a whole heap of trouble. Inflation is set for a dramatic rise. That’s going to eat into real incomes and cut everyone’s purchasing power. Apple has announced rises of hundreds of pounds for many of its products: there is a lot more of that in the pipeline. As doubts grow about future growth, particularly of tax revenues, the cost of servicing government debt could rise. And unless a soft Brexit can be delivered, we should expect sterling to fall further.
