Reasons to be Cheerful
Having just consumed a diet of Brexit headlines ranging from talk of a £20bn divorce (with Europe) to the government being pressured over passporting issues and Japanese carmakers bending the Prime Minister’s ear, I was heartened to hear that there are good reasons to be cheerful.
Compared to the rest of the world, the UK economy is in a far more robust and healthy state
The combination of (a) political instability - could impending elections in the US, Germany, France and across Europe destabilize their economies- (b) a safe, flexible market managed by a ‘light touch’ regulatory infrastructure and (c) consumers who have proved more resilient than expected has underpinned our economic growth
The ‘correction’ of sterling’s value is good news for inward investors, as well as exporters – however, given the fact that we have run a trade deficit since the mid-1990s, the rise in import prices will, inevitably, result in a rise in inflation.
Without wanting to appear too blasé, it does appear that informed opinion is now coagulating around the thought that what is key is not the terms of the Brexit divorce, but the relationship we have with Euroland after the divorce – in fact what our relationship will be with the 27 countries, for the next 20+ years.
Fear of the unknown is more than compensated for by the fact that we are a progressive, innovative, forward looking economy which is key to the future prosperity of Euroland – especially given their political and economic prospects (unemployment at over 10%, inflation rates increasing and lethargic economic growth forecasts). As someone said to me quite recently “The world is waiting for us”.
However, we should not be excited by talk of a weak sterling attracting new (property) investors to our shores, because existing overseas investors have experienced a paper write-down. The complexity of ‘averaging’ out property positions is made more difficult by the uncertainties of the FX market. Decisions about holding, disposing, sweating the assets is made more complex by uncertainties such as:
The prospects of a (potential) Trump managed US economy
The potential deflationary impact of a downturn in the Chinese economy - resulting from a strategy to migrate from a low value and low profitability, to a high value and high profit model
Unforeseen developments such as the Swiss monetary policy U-Turn which took the financial markets by surprise and resulted in an immediate devaluation of the Swiss Franc by 30%.
But, if we want to be a truly international trading nation, we must look beyond London and have a clear, significant and sustained regional investment strategy designed to add financial and economic muscle to the regions.
We have to pay more than lip service to the idea of a ‘Northern Powerhouse’ and ‘Midlands Engine’ and we must realise that ‘investing in infrastructure’ should mean more than just building a faster railway to London.
The wealth of the nation will be built on a real commitment to social cohesion and making it easier to do business outside London – be that better infrastructure, a more inclusive digital Britain, a new runway anywhere but London (do Japanese car manufacturers really want to fly into London, before heading out to Sunderland or Swindon?).
History tells us that a federal approach does work – from the Shogun model (especially the EDO period) in Japan, to contemporary Germany.