The Lib Dems were never going to win Witney, but their performance yesterday should rattle Theresa May. The Tories’ vote collapsed by a third, from 60% down to 45% and the Lib Dems were the ones to gain, going from a distant fourth with 7% of the vote to a respectable second with 30%. Witney is an affluent and well educated constituency deep in Tory heartlands and campaigning involved both David Cameron and Theresa May. If there’s anywhere that Conservative support shouldn’t be collapsing, its’ Witney.

Of course, it’s a special case of collapse because they’re not in danger of losing votes to Labour, but it should be worrying for Theresa May for two reasons:

1. It shows there is a big anti-brexit sentiment among a subset of people who matter – well educated medium to high earners, whose most natural party fit after the Tories is the Lib Dems.
2. The collapse of the Lib Dem vote was the only reason the Tories won in 2015. The Tories didn’t gain any significant amount of support – they just lost Lib Dem opposition in important seats. A resurgence in Lib Dem support would be bad news for them.

Mrs May will conclude a few things:

1. Brexit is not a safe long or even medium term mandate, especially as brexit support is negatively correlated with things that are positively correlated with attending polling stations in 2020, e.g. income, employment status and education level, and, uh, having a life expectancy of more than 3 and a half years.
2. The UK’s economic strength is quite precarious with high public deficit and private debt levels, low productivity and extraordinarily bad wage growth. On these metrics we rank far worse than the EU average, but we offset them somewhat by attracting a lot of foreign investment in terms of both money and labour.
3. The UK’s negotiating stance isn’t strong. Our negotiating power is a function of how rich we are. Meanwhile, our currency has lost a big chunk of value and will lose more if we go ahead with A50, and our economy is at risk of a sudden contraction if foreign investors lose confidence. The EU will have worked this one out too, despite brexiters’ assumptions that the EU negotiating team will be completely oblivious to our weaknesses.

Despite her posturing, the PM will be very hesitant to implement any definite brexit action next year.

The only thing that will re-assure her is a fresh mandate, which I think she will seek with a Spring election. She will of course win this on the strength of Labour’s weakness rather than her brexit policy, which might not work in her favour.

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Yes, it would be nice to have higher interest rates, but the reason we don’t have high interest rates is because the Bank Of England is applying stimulation, and the reason the Bank Of England is applying stimulation is that 1) the economy needs it and 2) the government isn’t.

Low interest rates basically mean high private borrowing. If the government wants higher interest rates, they will have to replace that with public borrowing or see unemployment rocket upwards.

Low interest rates are unsustainable in the long term because they transfer wealth from wealth creators to rent seekers via inflated asset prices. We also have very high levels of private debt now, so letting this continue indefinitely is unwise.

The government starting to borrow and investing in infrastructure is probably the best bet, but the deficit is already very high so it’s not risk free economically, and politically, given that they’ve based for the last 6 years their entire credibility on their reluctance to spend money, it would look a bit like they don’t know what they’re doing. Having said that, I doubt Labour under Corbyn will capitalise on that.

The third option, to raise rates and do nothing else, is clearly silly because the economy is lethargic even with low rates.

There is no winning move here. Cameron and Osborne left a timebomb.

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If Theresa May’s strategy to retain international companies’ presence in brexit Britain is to give them special treatment when they express doubts then we’re in worse trouble than I thought.

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Brexiters: We’ll obviously have the upper hand in negotiations with the EU because they won’t want us to stop buying their stuff

purchasing power declines 20%

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Play stupid games, win stupid prizes

It’s not clear if Theresa May’s blustering on hard brexit is anymore than just that. It might be a negotiating tactic to try to retain membership of the single market.

Even so, it’s still pretty stupid.

Even ignoring the fact that every time she opens her mouth the pound loses value, the very fact she seems happy to head towards a hard brexit will be spurring a lot of international businesses in the UK to be drawing up very concrete plans to relocate a lot of jobs to other parts of Europe. They might even go through with these before a hard brexit is unavoidable simply because part of the draw of the UK is a reputation for stability, which Theresa May has damaged even without any real actions.

Or in other words, Mrs May is doing her best to make us incur negative effects of brexit regardless of whether we actually need to.

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There’s a lot of things being written about Theresa May and how she’s all things to everybody. So far she’s not done anything apart from talking a lot. It would be extraordinary if reality ended up anything like the kind of noises coming out of the cabinet at the moment, not least because there’s a huge amount of inconsistency and contradiction.

It is all very speculative until she actually does something.

I don’t think she’ll still be PM in 12 months.

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At the moment, brexiters still can’t agree on the basic motivation behind brexiting. According to the likes of Liam Fox, Dan Hannan, et al, the EU brings us unacceptable red tape and leaving it will unshackle our economy. Others shy away from these kinds of claims because they accept that EU membership has a positive effect on our economy, and instead are keen to emphasise other issues that they think are more important than the economy.

We run into a similar conflict with protectionism vs globalism. Some people think that the EU is too protectionist and that it’s a mistake to tie ourselves to a slow growing trade bloc when we could instead be focusing on much faster growing emerging markets. For many others, the EU, especially with freedom of movement, is the embodiment of the kind of globalism which harms local economies and we should be more protectionist.

Meanwhile back on planet earth: free trade and a common regulatory framework is a pretty big deal. If you think the EU brings us red tape, try selling to the EU when we’re not a member. As for globalism, it sounds clever to bring up emerging markets, but fast growing economies are still very poor per capita. The EU’s wealth might not be growing fast, but it is full of people rich enough to buy from us at prices worth selling to them.

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