Britain and May need good trade deal with EU

London

BRITISH Prime Minister Theresa May and her Brexit team will have to negotiate a good trade deal with the European Union (EU). If the team fails, she might well have to fall on her sword.

In the event of failure, economists worry that Britain could then again face another year of political and economic uncertainty and stagflation.

A Tory leadership battle within a minority government might then open the door to a general election and an ultra-left Labour government. If this materialises, economists expect the pound and stock market to slump and foreign investment slide.

A recent poll conducted by market research firm Ipsos Mori showed why business people are worried. Only 32 per cent of adults polled are satisfied with Mrs May's leadership; 27 per cent believe that the Conservatives offer a good team of leaders; and 58 per cent expect the UK economy to fare worse in the year ahead.

Even though just 42 per cent of respondents believe that Labour leader Jeremy Corbyn would fare better than Mrs May, his party is 2 per cent ahead of the Conservatives. As 2017 draws to a close, markets are slightly more confident after months of intransigence in negotiations with the EU, and government and parliamentary infighting. The sterling has rallied sharply on hopes that an exit settlement of £40 billion (S$72.5 billion) will open the door to trade talks and a reasonable deal by the time Brexit takes place in March 2019.

Realistically, however, Mrs May's attempts to forge a compromise deal that satisfies both the UK parliament and the 27 EU member states is expected to be problematic.

The main reason is that she heads an unstable minority government. Her relatively brief, weakened premiership of 17 months has been marred by self-inflicted stumbles - poor decisions and vacillation - and bad luck.

The roots of Mrs May's difficulties began with her predecessor's ill-advised decision to hold a referendum in June 2016. A narrow 52 per cent Brexit victory on a 72 per cent voter turnout, meant that only 37 per cent of voters wanted to leave the EU.

Moreover, the vast majority of voters in London, the UK's financial hub and revenue generator, wanted to remain in the bloc.

Most of the youth with school and university education voted to remain and Scotland and Northern Ireland also wished to do so. The vast majority of global UK businesses and bankers also desired the status quo.

Their failure to win left the Remain backers at odds with the United Kingdom Independence Party and Brexit supporting Tory and Labour politicians.

The Brexitiers represented the relatively wealthy older generation, mainly in Southern England and people in the poorer north-east and Midlands who feared immigration and its impact on jobs, crowded schools and hospitals.

Mrs May inherited a nation divided between Brexiters and Remainers, youth and old, and rich and poor.

At the beginning of 2017, however, a steep 17 per cent sterling devaluation after the referendum helped spur the UK economy.

Optimistic and popular at first, Mrs May readied herself with an action plan, before triggering the start of Brexit negotiations in March. She outlined twelve objectives that "amount to one big goal: a new, positive and constructive partnership between Britain and the European Union".

Key aspects were immigration control exit from the EU single market and customs union so that Britain could negotiate free trade with the US, Asia and others, with less regulations and bureaucracy.

Both Tory and Labour MPS who backed Remain in the EU began to be vocal.

As a result, Mrs May decided to hold a general election to extend her majority and power to negotiate with the EU without impediments from MP Remainers.

This strategy failed dismally as large numbers of young people voted Labour. Saddled with a minority government, Mrs May has been forced to do a deal with the right-wing Northern Ireland Democrat Unionists. They could scuttle any border deal with Ireland if the agreement fails to keep the border open.