If Britain’s economic slump continues, Brexit may not mean Brexit

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British Prime Minister Theresa May's mantra is "Brexit means Brexit." If the state of the British economy is any indication, Brexit also means buyer's remorse. Only a month after anti-European Union camp won the June 23 referendum, the British economy is showing compelling signs that it is slumping toward recession. If the deterioration continues, Brexit might not mean Brexit. It might mean: Never mind, ladies and gentlemen, we're staying put.

The economic forecasts of both the Remain and Leave sides during the referendum campaign were hysterical. The Leave side initially said there would be no economic damage if Britain were to extend its middle finger to the EU, then conceded there might be a small amount of damage before Britain signs enough bilateral trade deals to allow it, once again, to emerge as a global trading powerhouse. The Remain side said a British exit would be painful and potentially plunge the country into economic darkness for years.

On Friday, Britain received the first indication that the predictions of the Remain side might have been less hysterical than the Leavers. A special edition of the Markit/CIPS purchasing managers' index survey indicated that Britain's economy is shrinking at its fastest rate since 2009, when the financial and economic crises were in full swing. The PMI for the services sector fell to 47.2 in July from 52.3 in June; any reading below 50 indicates contraction. The manufacturing PMI fell to 49.1 from 52.1 in June, the lowest in three and a half years.

Some economists think that the fresh PMIs mean the Brexit grind-down has begun, with no indication when it will stop, given Britain's leap into the great unknown. Markit itself said that if the PMIs were to stay at these levels, the British economy would contract at a 0.4 per cent quarterly pace, a decline last seen in the Great Recession of 2008 and 2009.

While official data are still lacking, there is no shortage of indications that Britain is entering an economic vat of mud. Listings at job-search sites are falling, according to The Economist magazine, as is peer-to-peer lending. Shares of discount airline giant easyJet are down by about a third since the referendum and the FTSE 350 real estate index has lost about 10 per cent.

Gore Vidal once said the four most beautiful words are "I told you so" and that's what the Remain side will chant. The 48 per cent who voted in favour of Remain hope that a genuine economic shock – should one arrive – will persuade Ms. May's government to find a way to retreat.

But how? Not easy, but not out of the question because Brexit does not mean Brexit, at least not yet.

Britain has two years to negotiate its way out of the EU after it signs the divorce papers in the form of Article 50 of the EU's Lisbon Treaty. But Ms. May, who voted in favour of Remain but could not be described as an EU cheerleader, has been playing for time. She has decided not to invoke Article 50 until next year and her delaying tactics received the backing of German Chancellor Angela Merkel, who agreed that Britain should "take a moment" to figure out what kind of relationship it wants with the EU.

So let's say Britain has three years to figure out its future. In the world of politics, three years may as well be three centuries. The whole mood of the EU nation states toward the EU could change over that period. French, German, Austrian, Dutch and Italian elections will held by 2019, and most before then. The EU architecture is bound to get tweaked, if not overhauled, to make it more flexible. Britain wants an "emergency break" in times of immigrant surges and the ability to withhold welfare payments from new immigrants.

Britain alone is unlikely to get such gifts as a peace offering from the EU even if the EU would much rather see Britain stay put than leave. But what if other EU countries were to demand some flexibility on the immigration side too? Giving special treatment to Britain would not fly, but would be politically acceptable if it were offered to all EU countries.

If that were to happen, the British government might be able to go back to the people and say, look, the EU has changed and the new terms of membership should be put to a second vote. Remember, the first referendum was not legally binding. If the will of the people change between now and 2019, it would be ridiculous and anti-democratic to insist that the 2016 referendum is unassailable forever. Referendums can't be governing straitjackets until the end of time.

The idea of a second referendum is gaining momentum. Owen Smith, who is attempting to replace Jeremy Corbyn as Labour leader, has endorsed a second referendum on the terms of any Brexit deal. Other parties, including the pro-EU Scottish National Party, might join the crusade. If they do, Ms. May might feel compelled to adopt a second referendum as official policy.

A second referendum could go against the EU too, in which case it would be lights out for Britain's EU membership. But if the Brexit-bound economy keeps deteriorating, a pro-EU vote could easily emerge. Ms. May's effort to buy time is not a sign of weakness. It's a clever strategy.