Last week’s Autumn Statement has provoked an extended gloom-a-thon. Those hoping to reverse the UK’s Brexit referendum, inevitably, were out in force. Scandalized at not getting their own way, countless political and media bien pensants have been doing their utmost to talk down the British economy ever since the vote went against them five months ago.
The negativity that’s followed Chancellor Phillip Hammond’s first Commons set-piece is just their latest attempt to spread panic and cower the government ahead of crucial negotiations on our European Union exit.
Has there ever been so much uncertainty surrounding an Autumn Statement? Phillip Hammond, while a significant player within the Conservative party for some time, has become Chancellor despite having little public profile beyond the “Westminster bubble”.
The fiscal views of the UK’s bean-counter-in-chief, moreover, remain something of an enigma. No-one seems able to say definitively if Hammond will continue with the Tories’ “austerity programme” or, in a rhetorical reversal, “loosen the purse strings” instead.
“While we will always put America’s interests first, we will get on with all other nations that want to get on with us. We’ll have great relationships, we will seek common ground not hostility, partnership not conflict”.
So Donald Trump during the small hours of Wednesday morning, as part of his acceptance speech. These emollient words, and the praise he heaped on Hillary Clinton after months of campaign-trail bile, changed the mood on global markets.
Having reduced interest rates over the summer, the Bank of England last week confirmed it’s no longer planning to cut again. That’s a good call, not least because the original shift down was anyway a mistake.
After rates were reduced from 0.5pc to a record low of 0.25pc in August, following the UK’s referendum to leave the European Union, Bank Governor Mark Carney indicated they could fall even further. The Monetary Policy Committee now admits the UK economy is significantly stronger than it had expected in the wake of the Brexit referendum. Ergo, such “forward guidance” of even lower rates has expired.
So, the UK is still growing quite well, despite the country voting to leave the European Union back in June. Our economy expanded, we learnt last week, by 0.5pc between July and September compared to the quarter before. That amounts to a buoyant 2.3pc annual growth rate. So does that mean everything in the UK garden is now rosy? And were Brexiteer-economists like me right? The answers are a definite “no”, and “maybe”.
What is now clear, and accepted by all but the most ardent anti-Brexit campaigners, is that the slew of pre-referendum scare stories warning of a “sudden and considerable fall” in economic activity if we backed Leave just over four months ago were nonsense.
The media hype surrounding any US Presidential election campaign doesn’t, in general, encourage serious economic analysis. The astonishing psychodrama of this epic 2016 contest – which reached a new peak, perhaps, during last week’s final television debate – is drowning out almost any meaningful narrative regarding the state of the US economy.
The world is fixated, of course, on the brutal battle between Donald Trump and Hillary Clinton. This marathon race for the White House, between two incredibly divisive candidates, has cut fissures across the American electorate far deeper than those that have long existed. And there’s still over two weeks to go.
The pound has had a slightly less volatile week. While dipping back below $1.20 on Tuesday, sterling has recovered to just under $1.23 at the time of writing. Despite the rally, the UK currency is still around 5pc down on its dollar value before early October’s Conservative Party conference – where Prime Minister Theresa May hinted she would opt for a “hard Brexit” settlement, one ruling out “membership of the single market” and prioritizing stricter immigration controls.
This fall in the pound has been sparked, as opposed to caused, by these early political skirmishes linked to the UK’s exit from the European Union. There are solid, fundamental reasons, in other words, beyond Brexit, why the pound needed to come down For starters, the UK has the largest current account deficit in the G7 – among the biggest in our peacetime history. Our annual budget deficit, despite years of “austerity”, also remains extremely large.
A tumultuous week for the pound. And there could be more to come. Sterling, at the time of writing, is below $1.24 – down from $1.29 last weekend. The markets are properly spooked.
This latest currency fall was sparked early last week, when Prime Minister Theresa May signaled her preference for “hard Brexit”. But then the pound plunged more. Friday’s “flash crash” – which saw sterling touch $1.18, before recovering – followed warnings from French President Hollande that Britain would “pay” for leaving the European Union. That apparently triggered a wave of automatic, computerized sell-offs.
International commerce is stalling. The growth in exports of goods and services is this year set to fall below the overall expansion of global GDP for the first time in 15 years. Myopic politicians, ignoring the lessons of history, are succumbing to the siren calls of protectionism. The world economy is becoming more insular.
The World Trade Organization, the most important trade body on earth, just slashed its 2016 forecast for the increase in total international commerce from 2.8pc to 1.7pc – well short of its 2.2pc estimate for the growth of the world economy as a whole.
Having approved a new nuclear plant at Hinckley Point, the next big infrastructure decision in Theresa May’s stacked in-tray is that vexed question – dodged by politicians for decades – of where to build Britain’s much-needed new airport capacity.
In July 2015, the five-person Airports Commission, appointed by David Cameron to shelve the issue until after the May general election, gave “unanimous backing” to a third runway at Heathrow. It looked almost certain Europe’s largest airport would get the all-important government nod.