London, 30 Jan 2020 – Services industry accounts for the 80% of the British economy. Financial services only in 2018 employ one million people and produced £132 billion (6.9% of total economic output). A post Brexit agreement like CETA (The Comprehensive Economic and Trade Agreement), will bring a sharp reduction of the service sector.
London, 18 Feb 2020 – A new UK-EU free trade regime will be agreed, if all hurdles are overcome over the few months left. The most likely option seems to be the one EU has with Canada, meaning the services sector, which accounts for the 80% of UK’s economy, will see an unprecedented contraction with huge job losses because that kind of trade agreement ends 98% of tariffs on goods, but leaves services, included financial ones, under the WTO regulation.
Now, Brexit implies the explicit request from the political electorate for investments in the Northern region of the country and to disinvest in London, which became a global service producer thanks to workers coming from the EU. The services boom developed and expanded over thirty years also as marketing and communications globalised arm of multinationals.
An economic re-conversion to manufacturing production as the one the British government would promote by choosing a new CETA agreement, will take decades. A bit faster would be the technological skills development, but anyway it takes years for such economic change to be effective and productive. This temporal gap will determine a crisis, a downturn, which is very risky for two main reasons:
1) not all economic dynamics depend on economy itself: if there’s a downturn and over this lap of time defence, political, environmental crisis happen, this can go deeper and last much longer than expected therefore all money invested on that conversion will be lost and the gap (i.e. non productive period) will not get covered.
2) The impact of a CETA style trade agreement will advantage the partner that exports more, in this case the EU: more than half (53%) of Great Britain’s imports come form the Union; main goods being pharma and electrical appliances.
Therefore, maintaining alive services and financial sectors over the next decade would help fill the gap. That would be a logical choice. But politics are not logic based, these are dominated by power dynamics, especially the Tory ones: the choice made now is to stabilise consensus because, once the anti-immigration and anti-London Northern storm reached its objective, the voting intention of those who voted to ensure Brexit last December, is now back to the ‘open’ position (that means they could potentially shift to Labour or Lib Dem in five years). That’s the political reason behind such determination to enhancing a new manufacturing age close to the North England tradition, and the Canada style FTA choice.
Politically motivated radical economic shifts are dangerous and have a huge social impact.
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