Campaigners for the United Kingdom to leave the European Union (EU) poured scorn on the government’s bleak vision of a post-Brexit Britain, as anxiety about next week’s knife-edge referendum spread to the Federal Reserve (the Fed).
Justice Secretary Michael Gove, one of Brexit’s leaders, criticized the austerity budget that the Remain camp says would be necessary to shore up public finances if the UK votes to leave. The plan’s main author, Chancellor George Osborne, is fighting a growing rebellion, as lawmakers from his Tory party lined up to reject the proposed tax hikes and spending cuts.
Osborne will seek to stem the revolt in a keynote speech at the Mansion House in the City of London on Thursday evening. He’ll be joined there by another leading advocate of staying in the EU: Mark Carney, governor of the Bank of England, which will announce an interest-rate decision earlier in the day.
Carney’s US counterpart, Janet Yellen, said on Wednesday that concern over a possible Brexit played a part in the Fed’s decision to hold back from raising rates.
Japan’s central bank refrained on Thursday from adding stimulus, even as it weakened its outlook for inflation. While the Bank of Japan statement made no specific mention of the looming referendum, it cited “geopolitical risks” fueling market volatility. With a week left before the vote, five of the last six published polls have showed Brexit ahead, a prospect that has unnerved investors. Global markets steadied on Wednesday and UK stocks pared losses. Still, from the Fed to EU headquarters, policy-makers are preparing for the fallout.
Yellen said the Brexit vote “could have consequences for economic and financial conditions in global financial markets.” The foreign ministers of Germany and France said that the EU’s two most influential members are ready to act to stabilize the bloc.
Anxiety over a potential Leave vote helped the MSCI Emerging Markets Index erase most of Wednesday’s gain. It also overshadowed the Fed’s dovish comments in trading of the yuan, as the Chinese currency swung back to losses despite a stronger central bank fixing. Australia’s 10-year bond yields fell below 2 percent for the first time.
In the UK Gove said he wouldn’t support Osborne’s post-Brexit austerity plans because they’re based on fear-mongering. “What we’ve heard from the ‘Remain’ campaign throughout this whole campaign have been dire warnings of the British people taking control of their own destiny,” he said in a BBC television referendum special.
He said manufacturers and entrepreneurs “have confidence in the British people—why can’t the ‘Remain’ camp?”
‘Fantasy economics’
Osborne did get some support from the opposition for his budget scenario. He presented it on a platform shared with his Labour Party predecessor, Alistair Darling, and both men warned that a £30-billion ($43-billion) “black hole” would open in Britain’s public finances due to reduced trade and investment after leaving the EU.
Claims of benefits from Brexit are “fantasy economics. Worse than that, it’s a deceit,” said Darling, who served as chancellor during the financial crisis. “I’m more worried now, much more worried, than I was in 2008.”
Labour finance Spokesman John McDonnell will weigh in on Thursday by saying that UK households would be £1,300 better off if the country voted to stay in the EU, according to the text of a speech he’s due to give in Manchester.
Immigration debate
Some of Labour’s Remain campaigners have also distanced themselves from Osborne: party leader Jeremy Corbyn said he wouldn’t vote for the mooted austerity budget. At least 66 of the 330 Tory members of parliament have said the same thing, deepening the party’s divisions and raising questions about Osborne’s future whatever the referendum result.
As support for Brexit gathers momentum, Prime Minister David Cameron—who called the referendum—dismissed criticism that the pro-EU argument has been too negative and has failed to address immigration, a key issue pushed by Brexiteers.
“You’ve seen from me a very passionate and strong remain campaign,” he told Channel 4 News in an interview. “Immigration is a challenge but I think everybody understand you don’t solve an immigration problem by wrecking your economy.”
Image credits: AP/Matt Dunham