Spreadsheet Phil was in trouble this week. "Hammond must go" claimed the Brexiteers. If Johnson is sacked, the lozenge provider must be axed. The Chancellor must have raised his head in disbelief, an innocent in the playground, "So what have I done?"
"Nothing, absolutely nothing" the retort. The Treasury has failed to deliver any money or provision for the hard line, no deal option as part of the EU settlement. Negotiators are needed for the "Truly Global Britain" trade team. Additional facilities are required at Dover, Folkestone and all ports North, East, South and West. More Customs and Excise Officers required, along with upgraded computer facilities, more sniffer dogs and storage facilities for the volumes of paperwork, once outside of the customs union and free trade area.
Others are making the effort. An approach to join NAFTA and the Trans Pacific Partnership combines truly global vision with geographic and economic myopia. Liam Fox is recreating the Board of Trade. First established in the early 17th Century with a focus on the colonies and plantations. OK so far Fox is the only member of an organisation which never really recovered from the American War of Independence. The Lords of Trade and Plantations may be smiling from the grave. James 1st initiated the process to investigate various problems of economic performance, the decline in trade and balance of payment difficulties. The King's coffers were under pressure. It all sounds so familiar.
Hammond had cautioned any money spent on the "no deal" option would be at the expense of the Health Service, Education and other priorities in the short term. No need to jingle more cash at the jingoists. Funds have been earmarked for the Home Office, Transport and Customs and Excise when needed. For the moment Hammond thinks it is better to plan for a transition deal. A deal which would ensure flights between the UK and Europe could still take place, along with the fundamentals of trade continuance.
In an effort to prove his credentials as "one of the boys", Hammond was in Washington. "The enemy, the opponents are out there, they're on the other side of the negotiating table." He said. Ah yes the enemy. We have fought them before on the beaches, on the seas and oceans, in the fields and streets, in the alleyways of Whitehall ..."
Shortly following, Hammond apologised. "I regret I used a poor choice of words. We will work with our friends and partners in the EU on a mutually beneficial Brexit deal" he even included a hashtag #noenemieshere. adding " In an interview today, I was making the point that we are united at home". Yes of course we are ... no enemies at home among the Tory back benches ...
Trade Deficit Deteriorates ...
Meanwhile back in the real world, the ONS released the trade figures for August. The deficit trade in goods increased to £14.2 billion, up from £12.8 billion prior month. It hasn't been so bad since, well since, September last year! We expect the deficit trade in goods to be around £140 billion this year. Almost 7% of GDP. It will take more than a resurrected Board of Trade to solve the structural problem underpinning the trade shortfall.
The service sector surplus was £8.6 billion. The surplus for the year as a whole will be around £100 billion. The trends continue despite the vagaries of Sterling.
The ONS also released the latest data on manufacturing. Output in August was up by 2.8% in the month, following growth of just 1% in the second quarter. The bounce is partly a statistical blip working from a low comparison with the prior year. Even so, we now expect growth of 2.1% for the year as a whole. Is this a recovery? Not really! Output still remains before the pre-recession peak.
The impact of leaving the EU will have a systemic shock to manufacturing with motor, aerospace and big pharma bearing the brunt of the set back. Overall output has been flat lining over the past twenty years. The progressive shocks of 1974 (-11%), 1979 (-18%), 1990 (-7%) and 2008 (-10%) continue to take their toll. EU departure will deliver a further setback of around 10% to output. Expect more relocation of manufacturing into Europe and deep sea markets. The threat of job losses at Vauxhall this week, is merely an indication of things to come.
Mark Carney was also in Washington this week. In a live interview with CNBC he said there likely will be an interest rate hike in the UK soon, as the bank seeks to control inflation. The Governor is bearish on the impact of Brexit "It is going to be a big adjustment". Without a trade deal in place there will be a period when the economy is "reorienting". Rates are set to rise! We are reorienting! There lies another enemy within ...
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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.