Economy update: what next?
We met with Mark Berrisford-Smith, Head of Economics for HSBC UK Commercial Banking, at an event in Coventry last week where he gave us his views and analysis on what’s been happening to the economy while the politicians ‘thrash about in political and constitutional thickets’.
‘This is a political and constitutional crisis like nothing we’ve seen in 100 years’ – Mark likened the current situation to the aftermath of David Lloyd George’s ‘People’s budget’ of 1909. That took 2 general elections to solve!
There’s certainly been no shortage of crises, cliff-hangers and shenanigans over the past 33 months since the Brexit referendum, but how has the economy actually been doing?
Here’s what we learnt
How has the economy been doing?
- There’s a global manufacturing slowdown happening see here, particularly in automotive and tech industries
- The Brexit mess has hardly caused a boom in the UK economy! But equally, the UK economy hasn’t been doing too badly all things considered.
- UK GDP growth slowed down in 2018 - economy grew 1.4% in 2018 compared to 1.8% in 2017. Real incomes are growing (inflation has fallen below 2%, and earnings growth is now over 3%, but lack of confidence is having an impact on consumer spending, which in turn is causing slowdown in the UK economy
- Latest figures for quarter to Feb 19 show the economy grew 0.3% in the last quarter – not a bad result considering all that happened in that 3 month window! This was partly bolstered by a ‘Brexit stock pile’ – a stock up buffer in case of a no deal Brexit.
What’s next for the economy?
- We’re likely to experience slow growth in the UK economy until there’s a way forward for Brexit agreed on, whichever route that takes. Once a way forward is agreed, growth is likely to increase again.
- If (and that’s quite a big if) a deal can be agreed on, then it’s likely that 4 things would happen:
- Consumer confidence would increase, which in turn would increase consumer spending and increase growth in the overall UK economy (services accounts for around 80% of the UK economy)
- Business investment would increase (it has been falling for the last 4 quarters, due to lack of confidence)
- Phillip Hammond might loosen the public purse strings – overall public finances are working out better than expected, and the government might seek to get popular with the public again via some giveaways in the next budget
- Brexit stockpiles will be consumed, which will have a temporary drag on growth until they are used up
Will we ultimately be economically better off in or out of the EU?
It’s a huge question, but Mark’s view was that yes, we might be worse off, but not materially - you might not even notice it. The economic performance of the EU 28 (or 27) countries varies significantly, but they’re all in the EU. Each economy has a different structure and demographics. Being in the EU doesn’t shape our economic performance - it’s the demographics and structure of the UK economy that makes it outperform other EU economies, and as long as that stays, we should be fine outside the EU.