Hopes that Britain might become the "Singapore of Europe" took a setback this week. A wave of reality swept over the beaches. Regaining sovereignty and taking back control, almost led to an EU blockade of vaccines to Northern Ireland.
Free movement of goods has already meant the confiscation of cheese and ham sandwiches of luckless lorry drivers entering the port of Antwerp. Fears are rising, the Douaniers across from Dover may be scoffing the plunder. The Department of International Trade has advised the "Lighthouse Keeper's Lunch" Defence. Two packedd lunches, one hidden under the dashboard, the other heavily smeared with English mustard, the solution.
Boris Johnson has resurrected the idea of the Singapore of Europe, as a future template for businesses in Britain. We will break free from the restrictions and regulations within the EU and set Britain on a new path to prosperity. Lower taxes will herald the move.
Rishi Sunak has been charged with task of leading a cross-Whitehall committee to examine which regulations may be reformed. The Chancellor will also chair a cabinet committee, focused on cutting red tape. Many will be surprised there is any red tape left, so much must have been cut in the past.
In 2014, Sajid Javid as the new business secretary, eliminated 3,000 pieces of regulation in the "Red Tape Challenge". Simplification, rationalization, consolidation became the mantra. Many were already redundant. Businesses heaved a sigh of relief as "Trading with the Enemy" orders were eliminated, dating from 1943, 1944 and 1945.
In 2021, business leaders from the CBI, the Chambers of Commerce and the IOD have made it clear there is no demand, for mass deregulation. No requirement either, for a reduction in employment standards and work force protection. There is little or no evidence that lower regulations will boost trade especially within the EU.
Singapore has a top tax rate of 22% compared to 45% in the UK. The Corporation tax rate in the UK is already par at 17%. Hopes for tax reductions seem way off. The government deficit is heading towards £400 billion this year.
Jonathan Portes, Professor of Economics at Kings College, London, suggests the idea that Singapore as a model for the UK is mostly froth. Singapore spends just 14% of GDP on public services, half as much as the UK on public health services. There is little appetite, for cuts to public services, to finance tax cuts. Little appetite amongst business for structural adjustments to essential regulation.
"Dreams of a Singapore-style Britain should be derided as fantasy". George Osborne's "march of the makers, rebuilding the workshop of the world" had more legs but not for long.
This week, Priti Patel the Home Secretary suggested overseas travel should be made illegal. Government Trips to "Fantasy Island" should be on the travel ban list ...
Speaking at Davos this week, remotely of course, President Xi warned of confrontation, advising cooperation, as the way forward in dealing with China.
Beijing's envoy to Washington has already made it clear, the US and China should work as competitors in commerce, not rivals in geopolitics.
Former Chinese Vice President Zeng Peiyan, has urged Biden to meet halfway to restore trust. "Confrontation between the two global powers is not inevitable. China has no intention of changing the US or replacing it. The US will be unable to change China as it sees fit."
"The two sides should work together to abolish trade tariffs and remove corporate restrictions on companies in the US and China. It is time for cooperation and global leadership on pandemic control and climate change. The drift to a cold war mentality should be avoided. The drift into the Thucydides trap is not inevitable."
The world awaits the change in stance from the Biden administration. The White Houses has announced trade policy with China is one of many items under review. Tariffs on trade have cost American jobs, increased prices and reduced National Income. The mantra should be co-operation and co-opetition to ensure both economies move forward together.
China is now a more important link globally than at the onset of the Trump administration. It was the only major economy to experience growth last year. The IMF is forecasting growth of 8% in the current year. It will overtake the US as the largest economy in the world by the end of the decade. It has already overtaken the US, as the largest destination for foreign direct investment,
Biden's commerce secretary Gina Raimondo has promised a tough line on China. The US is seeking to restore closer links with Japan and South Korea. Uncle Sam continues to flirt with Taiwan. Encirclement in the South China Sea would indeed be a ring of fire for the mainland.
Soft overtures from Beijing coincide with increased military action in the mountain border with India. Simulated attacks by Chinese warships on aircraft carriers and bomber flybys across the straits of Taiwan are staged.
The world awaits the hoped for change in stance from the Biden administration. Restoring military exercises with South Korea is not the ideal response ...
That's all for this week, stay safe, hands, face and space ...
At first glance, the latest retail figures for December don't look very inspiring. Sales volumes were up by just 2.9% compared to prior year. The value of retail sales increased by just 1.3%. "Stay at home Britain, takes the fizz out of retail sales", the headline in the Times today.
It is important to drill the detail. Shoppers may well have been staying at home. They were taking the opportunity to shop on line. Online sales were up by 61% compared to prior year. Online sales, as a proportion of all retail, averaged 30% in the final quarter. The switch to food sales on line doubled to 11%. The proportion of non food sales, excluding petrol, was near 40%. The challenge for conventional retail is immense.
Dig deeper into the data, sales volumes, excluding petrol and fuel, increased by 6.5% over the final three months of the year. Food sales were up by 5%. Gardening products up 9%. Household products were up by 15%. DIY goods were up over 35%.
Losers in the spectrum were clothing, footwear and cosmetics. Smart clothing and high heels are losing out. Charles Tyrwhitt, interviewed in the Times today, bemoans the loss of shirt sales in shut down and worries about the casual trend to baseball caps and t-shirts.
Pretty Little Thing, on the other hand, celebrates the era of "Athleisure". "Athleisurewear, as everyday wear, is the new black. Still wondering if it's appropriate to wear yoga leggings all day? The answer is yes." You don't even have to, downward face the dog. It's OK just to wear, athleisurewear, without the work out.
In this "tale of two economies" analysis is critical. Consumers are spending on retail. They cannot spend in pubs, restaurants, hotels and travel. They will spend on homes and households. Housing activity in December, was the highest end of year performance, since 2006. House prices ended the year up 7.5%.
The economy ended on a strong note at the end of year. We expect the lost output in 2020 to have been around 10% for the year as a whole. Prospects for the current year, are overshadowed by the current lock down. We are assuming there may be some release of conditions before the onset of Easter Then growth of almost 5% could be possible for the year as a whole.
Andy Haldane, Chief Economist at the Bank of England expects the economy to increase "at a rate of knots" from Q2 onward ... always assuming, of course, we don't get tied up in knots, as government plans unravel ...
Adults supervision back in the White House, Joe Biden is the 46th President of the USA. The inauguration brought a tear to my eye. I haven't been moved to tears, so much, since the last episode of the Repair Shop. New eyes, on an old Teddy Bear, always a tear jerker.
Old eyes on new challenges, an inspiration. The Biden Harris ticket is taking all the right steps, ticking all the boxes. A clear plan for Covid a priority. FEMA engagement, at Federal level, long overdue. Now even Anthony Fauci has a smile on his face. He admits working under Biden has that liberating feeling. It must be a shot in the arm, vaccine not bleach, of course.
The world welcomes back Uncle Sam. The US will rejoin the World Health Organization and commit once again to the Paris Climate Agreement. Biden will commit to Comax, the WHO effort to ensure a vaccine is made available to middle and low income countries. The decision on the Keynote pipeline will be reversed. The sale of sacred tribal lands to a fracking consortium now no longer a possibility.
A big economic stimulus underway. Janet Yellen promises big spending now, to avoid greater pain later. Jerome Powell at the Fed, is committed to monetary financing of fiscal deficits. The possibility of interest rates hikes pushed beyond the near term horizon.
No Muslim travel ban. No money for the Mexican wall. A return to a nuclear deal with Russia on the cards. A return to the international agreement with Iran, a probability. A commitment to NATO, Europe and traditional allies in the plan. We hope for rapprochement with China. An era of co-opetition the mantra. The era of competition left behind. A recognition, the Thucydides Trap is not written but as a warning ...
Trump has returned to Florida. The Senate impeachment trial will begin next month. A ban from ever taking public office again the prize. Former White House Chief of Staff, John Kelly told CNN, if it was up to him, he would vote to remove Trump. Former Attorney General Bill Barr, accused the President of "orchestrating a mob to pressure Congress". He went on to call his conduct a "Betrayal of Office".
There have been public appeals for Republican lawmakers to take action against Trump. Even the Proud Boys are surrendering support. "Trump will go down as a total failure" the message on Telegram. No more hails to the chief, hailstones and brickbats to follow ...
That's all for this week, stay safe, hands, face and space ... it's tough out there, stay in touch ...
The latest monthly GDP estimate was released this week. Activity fell by 9% in November compared to prior year. Construction activity was down by 1.4%. Manufacturing down 4%. The service sector fell by 20%. The arts and entertainment sector was down by almost 40%. Accommodation and food were down by 65%.
For the year as a whole, we expect output in the economy to have fallen by around 10% in 2020. In the current year, despite the lock down in the first quarter, growth of 4.5% seems possible for the year as a whole. This is based on the assumption there is some easing of restrictions prior to Easter and the vaccination program continues at pace.
Our detailed sector forecasts outline the fortunes of some twenty sub sectors in the UK economy. Later this month we will release our "planogram" of sector winners and losers with a "Stocks Behind The Box" list of shares to pick, stick or flick.
Our "Tale of two economies" continued this week. Tesco reported a record Christmas. Shoppers were "treating themselves", as favourite pubs bars and restaurants were locked down. Food outlets benefited from the two nation state. Pink Prosecco and festive treats boosted sales at Lidl. Total sales were up by 18% compared to prior year.
ASOS raised profits guidance, reporting a sales increase of 36% compared to prior year. Online fashion retailer Boohoo released news of a 40% increase in sales in the four months to December.
At Primark, sales fell by 30% in the 16 weeks to the end of the year. The company warned of a potential £1 billion loss of sales, if the lock down continues to the end of February. Primark continues to resist the move to online shopping.
The fortunes of Very, Joules and Next continue to reflect the benefits of multi channel marketing. Moonpig is heading for a £1 billion IPO, as Paperchase and The Card Factor struggle with restructuring and administration.
Halfords reported sales up by 10% in a "best ever Christmas" boosted by a strong performance in online cycling sales. Digital sales boosted the performance at Dunelm. Online sales were up by 20%, with overall sales up by 20% in the quarter.
It isn't all great news. Lock down restrictions and a slump in travel have led to sales a drop in sales of 50% at Whitbread. Britain's largest hotel chain, the owner of Premier Inn and Beefeater, announced job 1,500 job losses. Occupancy rates are down by over 50%
The Chancellor of the Exchequer has warned it will get worse before it gets better. Job losses and business failures are set to increase.
The Governor of the Bank of England has suggested we are approaching the "darkest' hour. Grab yourself a fat cigar and a brandy. Echoes of Churchill are in the Bank.
Andrew Bailey was referring to the "Darkest Hour before the Dawn". The dawn is coming but many in our "tale of two economies" have always seen the light ...
The Secret Service is launching a massive security operation to protect the inauguration of Joe Biden next week.
More than 15,000 National Guard, thousands of police and tactical guards will be deployed. Eight foot fencing will be in place to protect the Capitol building.
The FBI, The National Guard, U.S. Marshals and a host of other Federal Agencies will fall under the control of the Secret Service. Joe Biden's close protection team has been hand picked to protect the Democrat President. The FBI is warning of armed demonstrations across the country next week. A repeat of the chaos in Washington last week is not possible.
Trump will not be attending the inauguration ceremony. It seems unlikely, he will take the time to pen words of guidance to the incoming President. The President will clear the swamp, on the morning of the 20th and head for Florida.
Trump became the first President in US history to be impeached twice this week. The President was reported to be angry at aides for failing to defend him. Rudy Giuliani's fees are at risk. Advisors have been told not to pay the $20,000 dollars a day clock rate. A high price for failure, too much for Trump.
The President's problems increased this week. Deutsche bank is reportedly seeking to withdraw support for the Trump Organization. The bank has some $350 million of loans outstanding. The Trump National Golf Club in Bedminster has been removed as the host of the PGA Championship in 2022. A serious blow to Presidential prestige.
Trump was banned from Twitter, Facebook and other social media platforms this week. Worse still he could be banned from ever taking public office again, if the Republican back lash continues in the Senate. Mitch McConnell, senior senator of the GOP, thinks the President could be guilty. The trial is looming in the Senate, Republican colleagues have been told by McConnel, to "vote with their conscience" ...
If McConnell takes the lead, a conviction seems probable... That's all for this week, stay safe, hands, face and space ... it's tough out there, say in touch ...
It was the best of times, it was the worst of times ... and that was just week one! The tale of two economies continues. The third lock down is imposed into the first quarter of 2021.
This week, the SMMT reported car sales down by 30% in the past year. Showroom sales were hindered behind lock doors. Marstons, the brewer of Pedigree and Hobgoblin, called for more help for the pubs and restaurant sector.
Mitchell and Butlers, owner of All Bar One and Harvester, is to tap shareholders for funds, to offset the slump in revenue. Chief Executive, Phil Urban called on the government for new support measures, to help hospitality businesses.
Ryanair announced cuts in flights and services, as traffic levels are expected to fall by 80% once again. Restructuring is expected at Paperchase, as PwC are appointed as administrators. The retail chain may claim the title, of the first, but not the last, high street victim of 2021.
Marks & Spencer boss, Steve Rowe, talked of "near impossible" conditions, resulting in clothing sales down 25% in the final quarter of the year. M&S non food retail stores sales were down by almost 50%, offset by 50% growth in online sales. Revenues from food, online and Ocado were able to offset some of the high street damage.
Therein lies the reality of the "Tale of Two Economies". Sector losers during the pandemic have been clothing and retail, travel and tourism, food and accommodation, leisure and entertainment. Sector winners have been, food, online retail and logistics. Online food sales have doubled. The share of online sales overall has increased to over 30%. Digital acceleration online and into cloud, has become the "modus operandi" for all
This week ASOS announced a £90 million investment in a new 450,000 distribution warehouse. Joules and Next reported record sales online. Moonpig is planning a £1 billion flotation within the month. DIY sales, gardening and pets have been additional beneficiaries. Pets at Home, reported a surge in profits as home owners added pets to ease the pain and isolation of lock down.
Streaming has provided exceptional online growth for music and movies. Streaming accounted for 80% of music consumption over the past year. Netflix and Disney have enjoyed a surge in share price as a result of the home entertainment boom. The top seven digital stocks have surged in value by $3.5 trillion over the past year.
Barratt Developments reported record home sales in the second half of the year. New mortgages hit a record high in December. House prices ended the year up over 7% higher. Businesses like Rentokil were able to clean up, as hygiene demands increased.
Then of course there is Brexit. Finally after four years of confusion, the oven ready deal emerges slightly overcooked from the heated negotiations. A free trade deal, outside of the customs union, with a border down the Irish Sea and a bigger catch for UK trawlers, is the result. More catches to come for UK exporters in the future, no doubt.
Next week we will take a closer look at growth forecasts for the year in prospect ... an act of foolishness in the epoch of incredulity ... perhaps, don't miss that!
Trump and Tariffs, Boris and Brexit, have been the focus of concern over the past four years. Brexit deal done. Trump is out. Now we are able to focus on the impact of virus and vaccines as the world recovers from the pandemic.
Trump has finally come to realize he will not be the one inaugurated on the 20th of January. The shocking scenes in Washington forced the 45th President of the United States to accept Joe Biden will take office later this month. The President will now work towards an orderly transition. He will not be attending the inauguration, to assist the process.
We can but hope his right wing supporters do the same. Or at least a ring of steel will be in place in Washington to defend proceedings. Far better than the ring of silk in place around the Capitol last week. Too many lives lost so needlessly. It could easily have been far worse.
Trump is facing pressure to resign or face impeachment for a second time. "Incitement to insurrection", never a great feature on a presidential CV. The President insisted he only wanted to encourage a large peaceful protest. Not the storming of the Senate and the desecration of Nancy Pelosi's office that resulted.
Trump faced the ultimate indignity. Impeachment he can cope with but the imposition of a Twitter ban was the step too far. The President was furious, insane with anger, beyond the pale and mentally unreachable, the reports from the White House.
He had been forced to make a conciliatory broadcast, to denounce the violence. "The recording had the slight air of a hostage video, in which a captive is made to read words written for him." according to Gerard Baker in the Times today.
Trump's days as a hostage in the White House are numbered. Nancy Pelosi is taking no risks. The keys to the nuclear launch codes are out or reach. In Washington last week, it was the worst of times, the best is yet to come, hopefully within days ...
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy.
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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.
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