Sterling effort

In his first week as Prime Minister, Boris Johnson has shocked those who had assumed that he is a joker incapable of making any more progress than his predecessor. During his leadership campaign, he said that he would not settle for a modified version of the Brexit deal that Theresa May agreed and Parliament rejected three times. In office, he has been as good as his word and is refusing to start negotiations until the EU says it is willing to compromise. If it doesn’t, then we leave without a deal on 31 October.

If many politicians are still in denial about this, the currency markets are not. A no-deal Brexit would put the UK economy in transition from being part of a European bloc into one governed by yet-to-be-signed free trade agreements, under World Trade Organisation rules. Brexiteers and Remainers agree that the inevitable uncertainty would push the pound down by about 10 per cent. So sterling’s price has become a proxy for faith in Boris Johnson’s ability to deliver. If he is talking nonsense, nothing significant will happen in November and the pound should remain high. But if he is serious, currency adjustment should take place in anticipation of his delivering on his promise. The markets are betting on the latter.

A no-deal Brexit would certainly bring turbulence. But the idea that the UK economy is heading for disaster is wide of the mark. Time and time again over the past three years the economy has proved the pessimists wrong. No forecasters have been more embarrassed than those at the Treasury who, a month before the referendum, boldly produced scenarios where GDP slumped by between 3.6 and 6 per cent within two years of a Brexit vote, and unemployment soared by between 500,000 and 800,000. As things have turned out, UK economic growth accelerated after the vote and a million jobs went on to be created.