Last week, the consultancy and advisory firm PwC published a report, The World in 2050, focusing on the long-term growth prospect of Britain and other major economies. Its upbeat conclusion that “the UK could grow faster than most other large European Union countries in the long run, despite the medium-term drag from Brexit” has received extensive press coverage. We therefore decided to talk to the report’s author, PwC UK Chief Economist John Hawksworth, to get his perspective on the challenges facing the UK as it begins the process of leaving the EU and negotiating trade deals with the rest of the world.
Like others that we’ve spoken to, Hawksworth thinks that the mood in the City is much more upbeat than it was after the vote. After “an initial period of shock”, many of his clients “have settled down and are now waiting to see what happens”. They have also accepted that “barring some sort of political earthquake, Brexit will happen” and they are now focused on planning for what happens next. One of the biggest priorities is reassuring EU nationals already working here, their status will remain unchanged, whatever happens.
In the longer run, he stands by his conclusion that the UK will grow faster than Europe’s other major economies. However, he’s eager to point out that Britain’s post-Brexit future was “only a very small part of the report”, which mainly focuses on the shifting balance of power in the global economy. However, he does have some definite views about the steps that Britain should take to secure its prospects in the short, medium and long term. Overall, he thinks that a big priority will be “securing major trade deals”, starting with the EU.
He thinks that it is “very unlikely” that a trade deal can be agreed during the two-year window between next month’s triggering of Article 50 and Britain formally leaving the EU. As a result, he thinks that there will have to be a three to five-year transitional period to avoid the “cliff edge” of a hard Brexit. This will involve making some contributions to the EU budget, accepting the jurisdiction of the European Court of Justice and giving preference to EU citizens in immigration. He is hopeful that in the long run, the financial sector can negotiate access to the single market via some sort of equivalence. However, he warns that “we have more to lose than they do”.
Alongside securing a comfortable exit, the government “should also focus on the biggest global economies, such as America, China and India”. However, he warns that, doing deals with any of them “won’t be easy”. Indeed, the best strategy in terms of China and India would be to initially work on trade promotion, and only then to try and attempt a wider trade deal later. The large amount of existing trade between Britain and America means that the US offers “the best prospect” for an agreement. While agriculture will be one major sticking point, he thinks that this should be relatively easy to overcome “since it accounts for less than 1% of the UK economy”. Indeed, he thinks that a US-UK deal will be much easier to agree than a US-EU deal.
However, even this won’t be straightforward. “The US has much more negotiating power than the UK” and will therefore “drive a hard bargain”. In terms of services, he thinks that, “there could possibly be some further harmonisation of rules around financial services and telecommunications”. There could even be “some mutual recognition of qualifications” in areas such as accountancy, although this could be difficult in areas such as law that were more country specific. He also thinks that it would be a bad idea for the UK to enter into a multilateral agreement such as Nafta, although Canada would also be open to doing its own deal with us.
Being open to international trade and investment is an important part of making a success of Brexit (or at least mitigating its impact). But Hawksworth thinks that human capital is just as important. Indeed, he strongly believes that “the UK should remain open to skilled workers”. He warns that if the government doesn’t follow this advice and instead succumbs to pressure to “drastically cut immigration”, this “won’t be healthy for the economy as a whole”.