As a Brit, I love a good bargain, and a bargain in the Mediterranean sun is better than any other. There I was on a recent trip to Italy seeking such financial relief, only to be left retorting the impotence of my home currency. Political risk in the UK is seeing the pound creep ever lower against the dollar and the euro. The pound is now 0.4 per cent lower against the former and down 0.2 per cent against the latter. What was once a crisply chilled (albeit frothy) cheap beer abroad has become a distant memory. Escaping London prices has never been so difficult. All this has me begging the question: Will we ever get our so very British pound to once again go the proverbial extra kilometre? How should we expect the resurgence of the pound to come about?
The rhetoric surrounding Brexit since the referendum has been somewhat limited but none the less consistent. The word uncertainty has never been so prominent on the English tongue, and this uncertainty, specifically economic, is born from British political risk. As a member of the single market one is able to trade freely with 31 different states (including four non-EU states) with the main benefits being the free movement of resources e.g. people and goods, resulting in great efficiency and security. You know where your materials and labour will come from and that they can be brought together without too much hassle.
Upon leaving the European Union the UK steps into the unknown. The security and efficiency of the single market will be left behind. This is not to say that it cannot be found elsewhere, it is just we don’t know exactly where Britain will find such security and efficiency. Or even whether such economic comfort can be mirrored in, for example, the World Trade Organization (WTO).
In an effort to reassure the government’s wide economic prospects, The Chancellor, Phillip Hammond, has visited India to discuss possible future trade deals with our friends from the Commonwealth. On the face of it India may seem like an investor’s goldmine. It is the strong hold for growth in the South Asian region with their GDP for this year being measured by the World Bank as 7.6 per cent and rising to 7.8 per cent in 2018.
But trade deals involve politics, and politics inevitably introduces complexities beyond mere statistics. A trade deal with India could throw up various conflicts of interest for a government that is supposed to be delivering on the will of the people.
Currently, only 1.7 per cent of British exports go to India in comparison to the 44 per cent that is sent to the EU. As a destination, Britain is last on the top five list of countries India exports to. The stronghold developed during the British Raj has very much depleted and yet the legacy of colonial rule is something many Indians still feel very strongly about. Realistically, our position for bargaining is not as strong as Theresa May would like to make out.
Phillip Hammond wants to offer India further sales of the UK’s financial services, our second biggest export to the EU after IT and Telecoms. British financial services have always been internationally regarded with London seen as the world’s leading financial city, however, such sales wouldn’t come without a cost. Immigration and working visas are a hot topic for the Indian government who will want to push for freer movement of Indian workers to the UK. A cost that would undermine the main reason why many of those on the leave side voted as they did: to tackle and reduce migration.
The conundrum of maximising economic growth while satisfying national political demands has never been so tricky. The government’s initial efforts with India do well to highlight this. British economic hopes took a further blow after the Financial Times reported officials have rendered the possibility of a deal obsolete. Negotiations with the EU will continue for at least two more years. In the meantime, our position in said negotiations could be damaged by the Chancellors failed efforts for pragmatic economic discussion outside the EU.
Risk is determined by uncertainty. The failure of a bilateral between the UK and India leaves Britain even more uncertain about the harsh realities of life outside the EU. The economic risk surrounding Brexit will continue to build until we find some concrete positives results regarding negotiations or talks beyond Europe. Trying to deal with Brussels, consider the British electorate, and open up to the rest of the world all at the same time will be the hardest political economic task undertaken this century.
India hasn’t dampened the markets’ mistrust in the pound and the British economy moving forward. It will most likely be years before we can determine our currency so proud once again. What is worrying is the realisation that historical links and so called old friends do not necessarily pave the way for bilateral development. Something the government like to emphasise as a foothold for British influence across the globe.
As risk increases, life in the pound will continue to become more expensive. The price of a cold beer has never been so complicated, nor uncertain. As summer roles around, we continue to wait for an economic reprieve.