AD 69 was the year of Four Emperors in Rome – contenders for the Imperial Purple successively bidding the Praetorian Guard for the right to lead the Empire. The speed at which the Boris regime unravelled in July was shocking enough, but there was something redolent of Imperial back-stabbery in the way his potential successors immediately began bidding for the Dispatch Box with promises of tax cuts and balanced budgets to appeal to the 200,000 odd Conservative Party Members who notionally determine the next party leader and hence the next Prime Minister of the UK.

Much mud was slung between the contenders with accusations of every kind of chicanery – but amid the promises, threats and personal attacks, there has been precious little discussion of policy and plans to make the UK fit for purpose as a modern, stable, competitive, and fair economy. Instead, the choice boils down to a hard Brexiteer vs a we-simply-don’t-really-know Brexiteer – who will each try to appeal to the party vote on their anti-European credentials.

Determining how to put the UK on the right economic course is critical. We need a plan that addresses micro and macroeconomic issues – not political slogans; outlining the key objectives necessary for the UK to remain relevant in the modern Global Economy and how we get there.

There is absolutely no reason the UK should not succeed. Many of the key parts are in place. Our national finances were strained, but not irretrievably damaged by the pandemic. The economy is functional. There are wage inflation strains – that can be addressed. We remain a wealthy, diverse and demographically advantaged nation. The UK is strong in terms of global soft-power – and still punches above its weight in terms of military strength. The danger is that our increasingly factionalised and populist politics remain unfocused on the key economic issues to solve. These are essentially simple – and I’m sure the strategists in Treasury have already got the plans on file ready to hand out to whoever wins:

• Addressing the immediate issues of inflation, debt and growth.
• How to improve national productivity, promote invention and stimulate the innovation of new industry and business.
• Coping and paying for the threat of a global recession.
• Reopening trade with Europe to mutual advantage.
• Re-establishing energy and food security across the region.
• Addressing new threats – like a renewed refugee crisis.
• Putting in place an effective and costed energy transition policy that addresses growth alongside ESG.
• Reforming the business of government; balancing budgets, reforming the NHS, improving education and defending the nation.
• Build a more equitable society by providing social care & support, while ensuring equality and social justice?

The issues to solve range across the micro and macroeconomic spectrum - policies to boost productivity, invention, and innovation, facilitating trade and export growth, optimising tax structures, securing micro and macro funding structures, determining and funding the changing role of state and maintaining the UK’s soft and hard geopolitical power in a constantly changing world. Simples. They are long-term objectives, and all of them could be done with enough political willpower.

Boris’ swift tumble from grace will become another footnote on how all political lives are doomed to failure – and the reasons will merit little more than a footnote in the history books.

Politics is the business of being elected and staying elected. Since Brexit, making the country actually work has been somewhat neglected. Populist politics and polarisation have dominated the agenda. Even though the Tories were left internally riven by the referendum, they had two key vote winners: i) Jeremy Corbyn, the left-wing leader of the Labour party horrified many natural Labour voters, and ii) a popular populist leader in Boris Johnson who exploited his personal popularity and Corbyn’s unsuitableness to win a landslide in 2019.

Boris’ swift tumble from grace will become another footnote on how all political lives are doomed to failure – and the reasons will merit little more than a footnote in the history books. But post-Boris, the brutal reality is there are no more excuses. Conservative Politics have to deliver. The problem for the UK is there are some topics which the Conservative Party simply can no longer address or even discuss without immediately self-immolating. It has become factionalised. Either the Conservatives sort their internal division, or we need a new government pronto.

The key issue is Brexit. Six years after the Leave vote, it is still impossible to answer the “Webster Question”: Name a single thing Brexit has made better? (Full disclosure – I voted to leave.) Brexiteers will cite the UK’s swift pandemic response and the AZ vaccine – but that’s a one-off highlighting just how good the UK can be when we put our minds to it! For all the talk of opportunities, new trade deals, and money flowing back into the economy from Brussels – the only real thing Brexit has delivered thus far is hardening antipathy with Europe. Not a single major trade deal outside Europe has been agreed upon. Terms of trade and travel with Europe have got increasingly worse.

The right economic response would be to find a compromise with Europe to solve trade issues and increase trade flows – mutually beneficial. In an era when global supply chains are in flux, inflation is rampant, where energy and food security are under threat, the UK needs access – not blocks. Yet, none of the Tory contenders will dare talk about “that which cannot be named”: the UK’s ongoing relationship with Europe. To even mention a Brexit rethink or a more constructive dialogue with Brussels – is Conservative suicide. Such talk would drive the European Reform Group into apoplexy. The Brexit Taliban’s idea of engagement with Europe is to immediately refuse it. No Tory contender can dare upset them.

The second issue is the NHS. It is Europe’s largest employer and consumes state resources at a furious rate. It is becoming the black hole at the core of government spending. The Tories know to mention reform plays into the hands of Labour to accuse them of wanting to privatise the much loved (but hopelessly mismanaged) national darling – so Tory policy is to simply feed it more cash and leave reform to the next government.

Reforming the NHS can no longer be put off. Government pensions – of which the NHS is the largest part – are going to cost more and more, fuelled by inflation. It has to be reformed, made fit for purpose, and that means a new solution that rewards staff and meets the needs of patients at an affordable cost. That’s the real business of politics – making tough and hard decisions.

Amidst the recent shock resignations of Brexit Secretary David Davis and Foreign Secretary Boris Johnson, investment uncertainty, slower economic growth and a weaker pound, the United Kingdom is on its way to a slow but steady Brexit, with negotiations about the future relations between the UK and the EU still taking place.

And whilst the full consequences of Britain’s vote to leave the EU are still not perceptible, Finance Monthly examines the effects of the vote on economic activity in the country thus far.

Do you remember the Leave campaign’s red bus with the promise of £350 million per week more for the NHS? Two years after the referendum that confirmed the UK’s decision to leave the European Union, the cost of Brexit to the UK economy is already £40bn and counting. Giving evidence to the Treasury Committee two months ago, the Governor of the Bank of England Mark Carney said the 2016 leave vote had already knocked 2% off the economy. This means that households are currently £900 worse off than they would have been if the UK decided to remain in the EU. Mr. Carney also added that the economy has underperformed Bank of England’s pre-referendum forecasts “and that the Leave vote, which prompted a record one-day fall in sterling, was the primary culprit”.

Moreover, recent analysis by the Centre for European Reform (CER) estimates that the UK economy is 2.1% smaller as a result of the Brexit decision. With a knock-on hit to the public finances of £23 billion per year, or £440 million per week, the UK has been losing nearly £100 million more, per week, than the £350 million that could have been ‘going to the NHS’.
Whether you’re pro or anti-Brexit, the facts speak for themselves – the UK’s economic growth is worsening. Even though it outperformed expectations after the referendum, the economy only grew by 0.1% in Q1, making the UK the slowest growing economy in the G7. According to the CER’s analysis, British economy was 2.1 % smaller in Q1 2018 than it would have been if the referendum had resulted in favour of Remain.

To illustrate the impact of Brexit, Chart 1 explores UK real growth, as opposed to that of the euro area between Q1 2011 and Q1 2018.

As Francesco Papadia of Bruegel, the European think tank that specialises in economics, notes, the EU has grown at a slower rate than the UK for most of the ‘European phase of the Great Recession’. However, since the beginning of 2017, only six months after the UK’s decision to leave the EU, the euro area began growing more than the UK.

Reflecting on the effect of Brexit for the rest of 2018, Sam Hill at RBC Capital Markets says that although real income growth should return, it is still expected to result in sub-par consumption growth. Headwinds to business investment could persist, whilst the offset from net trade remains underwhelming.”

All of these individual calculations and predictions are controversial, but producing estimates is a challenging task. However, what they show at this stage is that the Brexit vote has thus far left the country poorer and worse off, with the government’s negotiations with the EU threatening to make the situation even worse. Will Brexit look foolish in a decade’s time and is all of this a massive waste of time and money? Or is the price going to be worth it – will we see the ‘Brexit dream’ that campaigners and supporters believe in? Too many questions and not enough answers – and the clock is ticking faster than ever.

Today the Bank of England has decided to take on the role of a supportive friend following Brexit with a 0.25% rate cut (from 0.5%) and some more quantitative easing. That’s basically when the Government prints money and flushes it into the economy, trying to give it a double espresso. What does this mean for the rest of us?

Savers
It’s another nail in the coffin for savings rates. Any saver who had hoped that we might revert to a time when you actually got paid some meaningful interest for holding money in a savings account will be sadly disappointed. Santander’s 123 account is still probably your best bet for cash balances of £3,000 – £20,000 in an easy access account. They have a £5 monthly account fee so check the interest outweighs the charges. Nationwide pay 5% on balances of up to £2500. But do keep an eye on things over the next week as we’d expect to see changes. More recently NatWest has told business customers that it might charge them for the privilege of holding their cash – welcome to negative interest rate discussions which feel counter-intuitive to the world order we know!  Watch this space….

Investors
Stock markets have generally liked interest rate cuts. Why? Well the basic thinking is that it’s cheaper to borrow for businesses, so companies large it up and hire more, build more and make more. And customers are more likely to go on spending sprees.

To all those cheesed-off savers: although the stock market bounces around, you can still get about 3% – 4% in income every year from some funds and stocks in the UK. This income is what we call a yield. And as well as the income (not guaranteed or fixed rates) you also have exposure to the investments themselves. Which can go up and down.

Have a look at this for details on Equity Income funds we like. 25% of Brits stick in cash and are suspicious of the stock market, but interest rates are at 300 year lows!!!

So is it time for a Plan B!? We think that for those of you in this suspicious camp with savings horizons of five years plus (Junior ISAs, pensions, ISAs earmarked for goals at least five years off…) – well, it could be time to take a deep breath and to stick a toe in the investment waters.

If you don’t understand markets and don’t want to understand them, that’s cool. Here’s how you can sort this quickly and painlessly without getting ripped off. Welcome to the investment ready-meal. A fund. Let someone else choose and blend the ingredients for you.

Homeowners
The cut may mean slightly lower mortgage rates, but in practice, they are so low anyway that it is not likely to make the marginal difference for the actual housing market. In practice, the housing market is much more likely to be influenced by consumer confidence (which is very weak), stamp duty rates (which are very high) and employment levels, which are reasonably stable for the time being (though there may be some nerves over job prospects in the wake of Brexit). The housing market is slowing and this is likely to continue.

Borrowers
If you’re in the market for a mortgage, do have a look at some of the fixed rate deals out there. Debt is cheap. It’s never been so cheap. So make sure any new mortgage OR your existing one is properly cheap!!!

Nevertheless, the usual rules apply. Loans still have to be paid back, and not all debt is created equal – credit card and overdraft debt is still very expensive, for example. You still need to check your rates and make sure you’re getting a good deal.

There is a valid question over whether all this tinkering by the Bank of England will work. Interest rates are already cheap, and may not significantly alter the behaviour of consumers or companies when we’re all scratching our heads over Brexit and wondering how the flipping hell this is all going to play out. Equally, it could be said to send a bad message. Are we supposed to believe everything is normal when these emergency measures are still in place? Time will tell...

(Source: www.boringmoney.co.uk)