How does one cut through the noise to get a good sense of the UK’s real economic prospects? Let’s look at the evidence.
First, since 2016 a mini-boom in the world economy and an increase in global trade has been good for UK exports of goods and services.
Second, the fall in the value of the pound, particularly against the euro, has encouraged a surge in exports to the eurozone.
Third, in normal circumstances this happy combination would have led to strong growth in the UK economy, keeping us near the top of the league of G7 major economies. Instead, the International Monetary Fund predicts that the UK is likely to grow by just 1.6% this year and remain pretty near the bottom of the league.
Fourth, employment is high but it is boosted by massive taxpayer subsidies to low-pay employers and firms have kept investment growth to the minimum. In the car-making sector, capital expenditure has halved over the past two years.
Finally, while Brexit uncertainty remains, demand across the economy has mostly been met by hiring more people, which is relatively low risk. Moreover, despite some skills shortages emerging, lots of the new jobs created in the last few years have been low paying and real wages have only just climbed back to pre-financial crisis levels.
And with productivity growing more slowly than in any of our main competitors after years of under-investment since the financial crisis, the Office for Budget Responsibility and the Bank of England warn that the economy will struggle to grow by much more than 1.5% a year in the medium term. That suggests that more interest rate increases may be needed to contain future inflationary pressures – which may increase costs for businesses, consumers and households.
So where does all this leave us? The overall picture is that the UK is under-performing. It is a high employment but low productivity and hence relatively uncompetitive economy with sluggish investment which depends on a weakish currency and strong world economy, particularly in Europe, to keep us going.
The UK economy is also vulnerable. Early 2018 has already seen growth slowing in the eurozone, mainly reflecting worries about world trade. Germany has seen consecutive monthly falls in industrial production. Some people fear that any tightening in monetary conditions – higher interest rates – could push the region back into recession, which would harm UK exports.
In the UK, the long period of manufacturing improvements came to a halt, temporarily at least, in February. Purchasing Managers Indexes for the services and construction sectors indicate weaknesses ahead. The retail sector is in crisis and consumers are becoming increasingly cautious with their spending.
We may be experiencing just a momentary pause. If the uncertainty about Brexit and world trade lifts, the mood could improve everywhere. But remember, we haven’t left the EU yet. No-one can accurately foresee what the economic impact on the UK will be if we leave the customs union and single market – which the government says remains its policy – and still less if disagreements, for example over the Northern Ireland border, lead to no deal at all.
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Edited by Luke Lythgoe
“Early 2018 has already seen growth slowing in the eurozone, mainly reflecting worries about world trade. Germany has seen consecutive monthly falls in industrial production. Some people fear that any tightening in monetary conditions – higher interest rates – could push the region back into recession, which would harm UK exports.”
“But remember, we haven’t left the EU yet”
Exactly
An intellectual sword right through the economic case for Brexit but the most telling point is when Ms Pryce indicates ‘we haven’t left the EU yet. No-one can accurately foresee what the economic impact on the UK will be if we leave the customs union and single market – which the government says remains its policy – and still less if disagreements, for example over the Northern Ireland border, lead to no deal at all.’ In short the current economic position is predicated on UK remaining in the customs union….yes taking back control over our own economic suicide
There is no rational economic justification for the UK to leave the single market and customs union. To leave a single market of 500 million potential customers, where we have an important role in establishing the rules governing the market, to do what ? True, we cannot know what will happen with absolute certainty by definition until we leave. Common sense should surely, however, indicate what the consequences would be and then we have experts who can help us to complete the analysis if any doubt persists.
As for the trade deals the UK wishes to have the freedom to negotiate, again this policy has no rational basis. Why would any country wish to give preferential treatment to the UK of 65 million people if they can negotiate a deal with the 27 remaining countries of the EU with a total population of 440 million ?
The problems with both Vicky Pryce’s commentary and the subsequent comments below are that they are sadly based upon reason and empiricism. Brex**it is a qua-religious cult which is amenable to neither. The other point to be borne in mind is that fundamental to the UKIPTory world view is the permanent need for a bogey man figure of blame upon which can be heaped all responsibility for their own failings. Once upon a time, the Soviet Union and Commies/”reds under the bed” were the whipping boys, then the Trades Unions in the UK and once both of those had been vanquished, the UKIPTories had to cast around for another whipping boy. The EU fitted the bill very nicely.