And even staying in the EU would only lessen the effects of this shortfall, not solve it

As we enter the dog days of article 50 negotiations, with the political heat rising to boiling point, MPs should stop a moment and consider what kind of Brexit catastrophe awaits the country.

Brexit supporters argue that MPs’ information could be a little out of date. And it’s not just them. Listen to the governor of the Bank of England, Mark Carney, who says a no-deal Brexit is not the catastrophe many believed it would be when forecasts were made last year.

In Carney’s considered opinion, the negative economic effects of leaving the European Union without a deal are lower following the considerable efforts of banks and businesses to minimise the impact.

This was how Steve Baker MP and Lord Lamont characterised Carney’s comments following the governor’s evidence session in the House of Lordsearlier this month. They fairly jigged on the spot as Carney’s upending of his usual gloomy warnings was relayed to any TV or newspaper reporter who would listen.

A paid-up member of project fear had defected, they said. And armed with Carney’s optimism, they went back into parliament to maintain their hard line against Theresa May’s deal and any of its challengers, such as Norway plus and a second referendum.

Except it would be wrong to characterise Carney and his colleagues in Threadneedle Street as thinking about Brexit in all its guises as anything other than an act of self-harm.

The referendum vote has already knocked 2% off GDPand, worse, it has hit business investment to the extent that Britain’s capacity to produce hi-tech, 21st-century goods as efficiently as Germany, France, the US and Japan is even weaker than it was 10 years ago. That shortcoming undermines Britain’s ability to grow smoothly and without debilitating side effects well into the next decade, whichever of the central bank’s scenarios you pick.

Pursuing a no-deal outcome, as the European Research Group persists in doing, means investment continuing to slump as firms that use the UK as a hub in their single market supply chain begin to pull out. The Japanese car firms are among the first to highlight this trend.

May’s withdrawal agreement and subsequent trade deal would put the UK back on the path to growth, but the price would be high inflation as the UK’s productive capacity, hollowed out by years of underinvestment and made worse by Brexit uncertainty, failed to keep pace with consumer and business demand.

The Bank of England says the UK can only grow manageably at 1.6% a year. Its forecast for the next three years post-Brexit – with a deal in place – is at least 2%.

High inflation would be met by Carney with higher interest rates, robbing most people of the extra disposable income gained from higher wages. The 2% growth rate is also underpinned by similar levels of migration as those seen in recent years, just swapping EU nationals for people from further afield.

Business groups on the continent talk in similar terms. They are, they say, prepared for the UK to crash out. At least, larger multinationals have put in place emergency measures to cope with the failure to secure a deal, and many medium-sized businesses have switched supply lines away from the UK.

This reveals the longer-term damage to economic relationships that businesses on both sides of the channel most fear. For France, that is especially painful. One of its few trade surpluses is with the UK and that would probably shrink, at least for a while, as exporters are forced to find new markets. Such damage means that even a revised assessment by Carney of a no-deal scenario still means all forms of Brexit will diminish UK economic output for years and probably decades.

Those who support remaining in the EU must also confront the views of most economists: that years of underinvestment have left the UK well behind the pack. Brexit doesn’t solve underinvestment. Staying in the EU only preserves the meagre investment that still exists.

This is why the Italian government is tempted to throw its lot in with China and its Belt and Road programme. Where else is Rome going to get the investment cash it desperately needs, in or out of the EU? Italian taxpayers?
That’s why the ERG considers sacrificing labour rights, environmental standards and business ethics to attract US investment via a trade deal with Trump’s America. Cheap food and a free ride for Amazon, Uber and Airbnb would mask the steady fall in domestic investment: something only British taxpayers can reverse.