When project fear becomes the reality we feared, it's time to wake up and smell the diesel. Airbus will be the first big manufacturer to withdraw investment from the UK. BMW will surely follow. Hard Brexit, outside of the UK, will seriously damage manufacturing and investment in Britain.
As we have long explained, Airbus, Motor, Big Pharma and Financials will be badly hit. Textiles, farming and further education will be badly bruised.
According to the Telegraph today, Boris Johnson's response is "F***" Business ... and they will. This incredible inability to face the reality of isolated life outside the EU will be seriously damaging to growth, jobs, manufacturing, trade and the balance of payments. Airbus is preparing to abandon plans to build wings in Britain and move production to Europe, China or the U.S.A.
"In the absence of clarity, we have to assume the worst case scenario", Tom Williams CEO of Airbus, told the Times this week. "It is the dawning realization, we now have to get on with it."
"The dawning realization we now have to get on with it"
In the UK Airbus employs 14,000 people directly, plus 110,000 indirectly. The company is already stockpiling components ahead of potential major disruption. Parallel manufacturing facilities will be established. China must be a firm favourite. The option, to establish a strong position in South East Asia, will become irresistible.
Airbus has factories in North Wales, Stevenage, Portsmouth, Bristol and Broughton. The impact of closure on the Broughton community would be devastating. according to Gabriella Swerling, in the Times today,
"Half the people who work at Broughton Airbus voted to leave the EU. They were not expecting this outcome. They voted because of immigration and they did not think beyond that." Well there is still chance ...
BMW followed Airbus this week, with a warning about the consequences of Brexit uncertainty. UK boss Ian Robertson argues clarity is needed by the end of the summer, or investment decisions will be at risk. BMW employs 8,000 in and around the Oxford area.
Trump threatened the EU with 20% tariffs on cars this week. The President has a vision of "No Mercs in Manhattan" and "No BMWs on Broadway". Not sure why. A legitimate demand for equal tariffs seems fair but misses the point. The trade growth future for the EU is with China and South East Asia, not with the USA. An ageing superpower with a penchant for introverted myopia does not offer the best deal for the future ...
One day I'll Fly Away ...
One day I'll fly away, leave your love to yesterday ...
The MPC voted to keep rates on hold this week. Ian McCafferty and Michael Saunders voted once again to hike rates. In this they were joined by Chief Economist, Andy Haldane. Which came as a slight surprise.
Andy has been arguing the need for Emotional Intelligence of late, EQ versus IQ. “The future could see a world of work in which EQ rivals IQ for skill supremacy,” "Students may be better off developing emotional intelligence rather than cognitive skills to prepare for a future of work in which they will be competing against robots", the Bank of England’s chief economist has said.
Emotional, yes, it nearly brought me to tears ... tears of laughter of course. The Chief Economist must have a clause in his contract to come up with at least one whacky idea every quarter. If Labour get into power, the Bank is to be charged with responsibility to improve productivity in the economy. Let's hope, this is one parameter left untouched.
"Andy Haldane becomes a hawk ..."
Back to the economics, Sterling rallied against the Dollar but still ended lower in the week. Ten year gilt rates were unmoved by the decision. Markets remain unconvinced rates will rise in August. The preliminary estimates for growth in the second quarter may provide some excitement ... Will rates rise in August? Our forward guidance is ... no idea ...
Borrowing falls, One day I'll fly away ...
The Chancellor explained this week, despite evidence to the contrary, the Treasury is not "Against Brexit". Neither is it a great advocate, the potential damage to the economy is becoming more evident.
It is a great advocate, however, of "fiscal frugal". Borrowing for the first two months of the year fell by almost £4 billion, compared to prior year. Borrowing in May was just £5 billion compared to £7 billion in 2017. The Chancellor is on track to reduce borrowing to just £30 billion in the current financial year compared to £40 billion in 2017/18.
"Borrowing will fall to £30 billion this year"
There is a growing suspicion, the growth figures are understated. Revnues and jobs suggest the economy is growing much faster than official figures suggest.The political pressures are building for a little more largesse.
Austerity is dead. More money for the NHS will trump the Labour move to grab the high moral ground. More for the police force and defense, more for welfare and social services will follow. Taxes may rise, or so Hammond may threaten. Waving the Red Box in the air, will not impress the back benchers with such a thin majority in the House ...
That's all for this week, we will be back next week, with more economics !
Have a great weekend.
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for 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.