David Smith. David Smith. Sunday Times September Copyright 2011 CIL Ltd. All rights reserved.

Transcription

1 David Smith David Smith Sunday Times September 2011 Copyright 2011 CIL Ltd. All rights reserved.

2 New dawn or false dawn? What s the economic and business outlook?

3 Seven years after the worst storm in a century

4 It s taken a long time to get over it

5 In America

6 And even more so in the eurozone

7 Are we still in an age of instability?

8 How has Britain done?

9 The UK recovery has strengthened

10 Much to George Osborne s relief Early 2013 Britain seemingly faced a tripledip and George playing with fire Osborne huge pressure to change policy. Deficit reduction appeared to be going into reverse. Growth came just in time. The budget deficit is still falling, albeit slowly.

11 Inflation has come down sharply

12 And so has unemployment

13 Alongside a near-record employment rate

14 But wages have remained surprisingly weak

15 So has productivity growth

16 Service sector very strong

17 Construction strong but slowing

18 Manufacturing perking up after a slowdown

19 But the budget deficit s still huge

20 .with plenty of work to do

21 What s the outlook?

22 Five questions 1. Will UK growth last, or is it a flash in the pan? 2. Is the euro crisis over? 3. Can the economy be rebalanced regionally? 4. Are interest rates going up? 5. What does the Scottish referendum tell us about the general election and EU membership?

23 1. Growth risks have not gone away David Cameron s red lights Eurozone weakness notably Italy, France, Germany Geopolitical concerns (Russia- Ukraine, Middle East, Ebola) UK political uncertainty: before and after the May 2015 general election

24 But monetary policy is working

25 Leading indicators point to more growth

26 Bank of England still quite upbeat

27 As are independent forecasters

28 Business investment looking strong

29 And consumers should have more to spend

30 Forecasters look for a long upturn

31 2. The good news for Europe Nobody is seriously talking about the end of the euro any more. The European Central Bank is aggressively acting to head off deflation & stagnation. The most severely-hit countries in Europe appear to be coming through the worst. Growth, albeit slow growth, is back and unemployment is falling.

32 The bad news for Europe Though growth is back, it is very weak, perhaps no more than 1% a year. Ultra low interest rates tell their own story. Two of its big economies France and Italy look particularly weak, even as peripheral economies recover. Political discontent, driven by slow growth and high unemployment, persists.

33 Europe should continue to recover very slowly

34 But with very wide variations

35 3. Regional rebalancing The three I s: Regions need more investment. Regions need more and better infrastructure. Regions need to innovate more.

36 Businesses in the UK

37 A North-South business divide? Private sector businesses per 10,000 population: London 1,266, South-East 1,119, South-West 1,061, East of England 1,056. East Midlands 844, West Midlands 835, North- West 835, Yorkshire & the Humber 820. Northern Ireland 785, Wales 753, Scotland 740. North-East 633.

38 And an infrastructure divide

39 Manufacturing is recovering well

40 But regions are not all about manufacturing

41 Services are much more important

42 Take care with tax devolution In principle, giving the regions and countries of the UK more control over taxation is a good thing. But it risks complicating fiscal policy. Could replicate some of the eurozone s problems in the UK.

43 4. Interest rates are at record lows

44 But will eventually rise Bank of England set to hike at some stage next year Federal Reserve should also start hiking in 2015 But any rate rise by the European Central Bank very distant Japan stuck with zero interest rates

45 The household debt burden has fallen

46 So the economy can take modest rises Bank of England emphasising a new normal for interest rates. When rates rise they will do so gradually and to a much lower level than in the past. 2.5% or 3% rates could be the new norm manageable for most borrowers.

47 5. UK s 2015 election will be close

48 Three normal election rules Oppositions lose support in the run-up to elections so need a big lead in the year before an election. Governments tend to lose support between elections; being in government takes its toll. The party that is ahead on economic competence wins.

49 So a rule-breaking election No party looks strong enough to win an overall majority another coalition very likely. Tories well ahead on the key issues of the economy and leadership. But Labour appears to be doing well in key marginals. Coalition & rise of UKIP may have changed rules. My very tentative prediction: another Conservative/LibDem coalition.

50 Will we leave the EU? 2017 referendum only guaranteed if there is outright Conservative victory. Could happen if Con- Lib coalition; unlikely in Labour-led coalition. Scottish referendum experience suggests that businesses will come out and earlier against exit. Last time we had a referendum 1975 opinion shifted sharply during the campaign. Immigration/red tape/europe s economic woes may have changed the picture.

51 EU exit: tight but marginally unlikely Recent events UKIP s rise, appointment of Jean-Claude Juncker, budget row increase the chances of a vote to leave, though appointment of Lord Hill as financial services commissioner eased the tension. But still more likely than not that the UK will stay in the EU either because there is no referendum or because of what is offered to voters.

52 Voters are persuadable on Europe

53 So should we still be worried?

54 Or look forward with optimism?

55 Finally, keep counting those skips