And so it came to pass. The EU granted an extension. Boris Johnson called for an election. The house voted voted 438 to 20 to deliver the third trip to the hustings in less than five years. So much for the fixed term parliament act, members of parliament appear to be as disillusioned with the process, as the general public at large.
Boris Johnson is ready for action. The Tory platform is clear. We will be leaving the EU on the 31st January. No deal Brexit is off the table. The deal is done. "Oven ready, just slam in the microwave", the rather unappealing gastronomic option. The Conservatives are way ahead in the polls. The election will deliver a clear working majority in the house, or so it is thought.
Much can go wrong over the next six weeks. Nigel Farage plans to disrupt the "Bake Off". The President of the U.S.A. intervened. Nothing much to worry about at home, Trump dropped in to the Farage LBC radio show, to offer support. Farage-Johnson would be an unbeatable dream ticket. The deal with the EU may leave the UK free to trade with the rest of the world but a US trade deal would be virtually impossible, he explained.
The UK would have to accept chlorinated chicken, hormone injected beef and must be prepared to deliver the dirt on Joe Biden. Farage took great delight in outlining his demands for a place on the ticket. Johnson had no problem refusing. This is not the time to be associated with a hard Brexit and no time to be associated with a President on the verge of impeachment.
The race is on, the vitriol will pour, promises will be made, excessive spending plans will be revealed, the IFS and the OBR will explain the funding shortfall. The one consolation, it will all be over by Christmas and then we can start all over again ...
House Prices in Stasis ...
Trump and tariffs, Boris and Brexit are the major issues taking their toll on economic activity. Now we add impeachment in the US and an election in the UK to add to the confusion about just what happens next.
Nationwide this week revealed house prices were pretty flat in the month of October. Annual house price increased have been below 1% for eleven months in a row. Robert Gardner, chief economist explained, “Indicators of UK economic activity have been fairly volatile in recent quarters, but the underlying pace of growth appears to have slowed as a result of weaker global growth and an intensifying of Brexit uncertainty."
Should we worry so much about house prices? Not really. A slow down in prices contrasts with a near 4% growth in earnings in the latest date. The Nationwide price to earnings ratio is easing off recent highs. The move down from the recent 6.0 highs compares to a long run average of 4.5. A slow down in prices will improve affordability and housing access for first time buyers. The slow down in price rises may improve volumes into the New Year as the political uncertainty clears
Further news from the motor trade confirms a further drop in production in the month of September. Output fell by 4% in the month, down by 16% in the year to date. 80% of manufacturing is destined for the export market. Over half of which is shipped to the EU.
This week, Fiat, Chrysler, Peugeot, Citroen and Vauxhall announced a merger that could see the enlarged group become the world’s fourth-largest car maker. The news increases the prospects of plant rationalisation in Europe and concerns about Vauxhall commitment to the UK.
Manufacturing took a further hit in the latest PMI data for October. We still expect growth in the UK to be around 1.2% for the year as a whole. Most analysts expect a further slow down in 2020 to just 1%. No recession in sight, the surprise next year may yet be to the upside, if the political uncertainty clears ...
The Genius of Our President ...
Excitement in the U.S.A. is building. The impeachment process is underway. John Kelly, the President's former chief of staff had explained to Donald Trump, the importance of not appointing a yes man to the role. A yes man, prepared to follow the Presidents whims and wishes, would lead to an inevitable impeachment, he warned. And so it came to pass. The Democrats moved to impeach.
The White House was quick to issue the riposte. Stephanie Grisham, Director of Communications, explained "John Kelly, was unequipped to handle the genius of our President".
Kim Jong-un was impressed, firing off a few short range missiles in celebration, a reminder there was still a Nobel Peace Prize on offer on the Korean peninsula. No prize for economics in the U.S.A. Growth slowed to just 2% in the third quarter as business investment slowed. Government borrowing increased to $1 trillion dollars in the financial year, the unemployment rate increased to 3.6% in October.
The Fed cut rates by a further 25 basis points mid week placing the blame on trade uncertainty and the Trump tariff plans. 128,000 jobs were added to the payroll in October, assuaging fears of recession in the current year.
We expect growth of just 2.3% in 2019, analysts expect a further slow down to just 1.8% in 2020. It could have been and should have been so much better. The economy was unequipped to handle the genius of the President. The genius was unequipped to handle the complexity of the economy.
This week the Trumps announced they are changing residence from New York to Florida. The tax breaks may be better, but is also makes for a better retirement home. That may be sooner rather than later if the Democrats have their way ...
That's all for this week, have a great weekend. We will be back with more news and updates next week!
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy.
|The Saturday Economist|
The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.