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Ted Heath only managed to get the UK into the European Economic Community with the help of a group of Labour MPsWhat is becoming clear is that Brexit politics and party politics are moving along increasingly divergent tracks – how else could one explain the largest defeat in living memory for an incumbent government followed twenty-four hours later by a motion of no confidence also being defeated?
Historians are reminding us that Ted Heath only managed to get the UK into the European Economic Community with the help of a group of Labour MPs. Once one gets away from the emotional effect, this is fascinating stuff.
The US government shutdown, now the longest on recordMaybe the UK’s travails are also looking somewhat less worrisome on a relative basis, with evidence of stress emerging in the rest of the world - stress which markets, in their prescient way, sniffed out last year. The US government shutdown, now the longest on record (but possibly not a record that Donald Trump is going to brag about) is beginning to have effects on real economic activity.
One realises just how perilous existence is for large swathes of the US population when pay checks don’t get sent out for only a few weeks. There is also a well-documented slowdown in parts of Europe, not least in Germany, where the country’s dependence on global trade is being exposed.
And I would dare to say that the reality is even slower than that, given that it is generally accepted that these numbers are massaged to arrive close to the government’s targets.
As long ago as the second half of 2016 the government started to rein back its previous stimulus, fearing the potential for another speculative bubble in the property market. This was prudent management. Equally sensibly it tried to set the country on a path towards more balanced and sustainable growth.
This entailed, for example, curtailing the less regulated lending practices of the “shadow” banking sector (where loans were easy to obtain, but often with usurious interest rates), reducing notoriously high levels of pollution, and shifting the growth emphasis from capital expenditure towards consumption.
As is the case when turning a supertanker, it took quite a long time for these measures to have a visible effect. And once the ship is turning, it takes quite a lot of skill to stop it overshooting. And (from my own smaller scale memories of navigating the racing tides of the Menai Straits) you have to start turning a long way out from your intended destination.
A reduction in the VAT rate is also under consideration, as are trade-in incentives.These include fiscal initiatives, such as lower personal tax rates, allowing certain household expenses to be offset against taxable income, and a tax cut for small businesses. A reduction in the VAT rate is also under consideration, as are trade-in incentives. These will take their time to have an impact, but, given the government’s intentions and the already poor market performance, now is not the time to start panicking. Of course, the external influence of Donald Trump and his trade tariffs cannot be ignored, but they are a separate issue.
China is taking all the measures required the draw a line under this domestic cyclical slowdown, and will do more if needs be. Those predicting a “hard landing” look as though they will be disappointed again.
About the author
John is Head of Investment Strategy for Investec Wealth & Investment UK, is a member of the Global Investment Strategy Group, and is Chair of the Investec & Investment UK Asset Allocation Committee. John graduated from Exeter University in Modern Languages in 1984. He spent 27 years as an institutional stockbroker with Merrill Lynch and Lehman Brothers, before moving to investment management in 2011 and joining Investec in 2013. John is an Everton FC supporter.