Herewith an economist’s guide to coping with a no deal Brexit – close your eyes, cross the fingers of one hand and hold your nose with those of the other, then leap into the unknown with buoyant but wholly unjustified optimism! At least that appears to be the proposal from our remarkable (not in a positive sense) Prime Minister. Oh and you can make matters worse by choosing to take this leap into the abyss while the rest of the world faces a sharp downturn into unchartered economic waters. J. R. R. Tolkien would have struggled to create such a bizarre world.

Having got that off my chest, consider the plight of the global economy. Perhaps the most substantial and significant problems are regarding the USA and relations with China; followed by the potentially pending recession in Germany.

Essentially the global economy has never really fully recovered from the traumas which followed the banking crisis in 2008. We have had a decade of weakness, first outright recession followed by sluggish growth at best, well below what had come to be seen as normal in the developed world. Coupled with, and indeed correlated with, this continuing weakness is the lack of scope for policymakers to intervene to ‘correct’ slowdowns when they transpire.

Policymakers lack ammunition for effective monetary and fiscal policies. Interest rates generally remain at historic lows, implying that sharp rate cuts to stimulate business investment and consumer expenditure are simply not feasible. On the fiscal policy front, the scope to increase deficits while remaining in some semblance of control over inflation and the exchange rate is likewise constrained – although this wonderful new UK Government of ours appears hell bent on fiscal expansion whether justified or not!

Another problem for policy makers is their lack of influence over, or support from, their political counterparts. That is particularly clear in the USA, where President Trump is a persistent and strident critic of Jay Powell, the Chairman of the US Federal Reserve. But in the UK we also have an issue, with forecasts from the Bank of England being slated by some Brexiteers as contributions to ‘Project Fear’ – and this while recruitment is underway for a new Governor to enter the fray in 2020.

The trade war between the USA and China shows no signs of being ripe for any early solution. The recently announced tariff hikes by China on the likes of automobiles, soya and oil have ratchetted up the dispute one more time. The USA inevitably retaliated. This continuing and heavy-handed dispute is not only really bad news for the two –equally stubborn - protagonists. It will have severe global repercussions on real economies and the continuing uncertainties will be worrying indeed for the financial markets.

Closer to home continuing sluggish growth is the order of the day for most European economies. The two notable exceptions are the UK and Germany, both of which have experienced one quarter of negative growth – facing the possibility of a second such quarter which would be sufficient to signal recession. The global trade tensions will certainly be hitting Germany hard.

The decline in UK GDP in the second quarter of this year was in part a result of an unwinding of the strong stock building (pre Brexit) which had been such a feature of Q1. But that was not the only cause. Business investment remains on a continuing downward trend, unsurprisingly given Brexit and global trade war uncertainties; and both manufacturing (particularly) and services are struggling.

Our economy is being supported by rising Government expenditure. This looks set to be a continuing trend. Austerity is proclaimed to be behind us and a General Election may well lie ahead; time to spend, spend, spend!

The other key positive feature has continued to be consumer expenditure. Average earnings growth is on the up, presumably in part related to the tightening of the labour market in recent months. That earnings growth has doubtless boosted consumer spend. But now the labour market appears less buoyant. Unemployment, in terms of numbers unemployed, is gently increasing while the number of vacancies has been dropping through 2019 – after six years of steady increases. It is difficult to judge what effect on consumer spending any mild change in labour market conditions will have, when placed alongside Brexit uncertainties. The official data show retail sales continuing to exhibit moderate growth; but the CBI August survey of UK retailers showed the weakest outcome for over 10 years. And it is best to remember that despite recent positive signs, real earnings in the UK – i.e. allowing for inflation eroding purchasing power – remain a full 5% below the level in 2007/8, pre-recession.

As noted above ‘things ain’t what they used to be’ on the economic front. The ONS has been looking at household incomes by birth cohort. Up to the 1970s there was a uniform trend of higher real average disposable incomes for each generation. That has come to an end. Those born in the 1970s are now no better off than their counterparts from the previous decade. I suspect that for more recent generations the story will be of income decline as compared to their predecessor cohort.

All these concerns are in advance of a no-deal Brexit.

Jeremy Peat is visiting professor at the University of Strathclyde.