"I'm very clear: I have no idea what Theresa May is talking about" claimed Michael Deacon in the Daily Telegraph this week. Patrick Kidd, Political Sketch writer in The Times was equally flustered. "One thing is clear, we are confused. Does anyone have the foggiest idea how it is going?" he asks. It's a good question.
The Prime Minster outlined her thoughts on leaving the EU without a deal. "As I have said and others have said, it would be irresponsible for the British Government not to look across at the changes that would be necessary, regardless of the eventuality, and indeed some of the changes that would be necessary in the event of a no deal would be the same as changes that would be made in relation to us achieving a deal". Excellent.
In the Commons two weeks ago, when asked if new EU laws would apply in Britain during the transition period, the Prime Minister was equally clear " Given the way things operate, it is highly unlikely that anything brought forward during that period that has not already started discussions through the European Union to which we are being party of until we leave and on which we would have been able to say whether they would be a rule that we would sign up to or a rule that we would not wish to sign up to". Mmmm. [Verbatim quotes from Michael Deacon]. Confused? You should be.
Should we worry? Well Yes. Mrs May has emphasised we will all still be friends after the divorce in 2019. The PM wants a "strong and successful EU working alongside a confident outward looking Britain". A truly global Britain in which Liam Fox will resurrect the 16th Century Board of Trade and Chris Grayling will have us grow more food in his "Back to the Allotment Dig for Victory" appeal. We will join NAFTA, The TPP and the Melbourne Chamber of Commerce. It's going to be great, making Great Britain Great Again!
According to a poll by BMG research this week, 76% think the negotiations are going badly. 12% think they are going well. Slightly down on the 15% who thought may delivered a great speech at conference this month. Ah the resilience of the British people and the Tory hard right.
Theresa May was left talking to the plants this week, the real talks were underway in the "Big room" next door. The EU offered a concession. They may be prepared to move to the next phase of talks as early as December, as long as Boris Johnson doesn't make the trip to Brussels.
Meanwhile Lloyd Blankfein head of Goldman Sachs tweeted this week "He looks forward to spending more time in Frankfurt". May should take a leaf from Prince Charles' greenhouse, he didn't just talk to the plants, he would instruct them! Maybe then we might see real progress!
Economics news this week ...
Latest inflation figures were released on Tuesday, the headline rate CPI hit 3.0% in September, goods inflation increased to 3.2%, core service sector inflation remained steady at 2.7%. Fish and book price increases were in double figures, the price of Butter is mounting. It is healthy to eat butter again, with fish, reading a good novel presumably.
Manufacturing prices were up by 3.3%, input costs were up by 8.4%. The latter driven higher by the prices of oil, imported metals and home food costs. The Governor had warned of an imminent rate rise last week. The inflation data pushed Sterling higher, the rate rise loomed large.
Then came the jobs data on Wednesday, unemployment fell, vacancies increased. The low pay mystery continued. Overall pay in the UK increased by just 2.2%. Private sector pay increased by 2.4%, driven higher by a surge in business and financial service sector pay. The prospects of an imminent rate rise abated slightly. The pressure on real earning would hit household spending. Or would it?
Retail sales increased by just 1.2% in volume terms in September. The value of sales increased by 4.4%. Online sales increased by 14% accounting for 17% of all retail sales. 2,000 job losses were announced at Sainsbury, bringing the total job losses in the sector to over 20,000 so far this year. Huge structural changes are taking place as a result of the changes in retail dynamics.
So should we worry about household spending? Not just yet. Retail spending will be around 4.5% in Q3. The strong jobs market continues. Don't worry about productivity or low pay, the market will self correct at it's own pace. Revenues will continue to flow into the state coffers.
So it proved with the release of government borrowing figures for the first half of the year. Public sector borrowing decreased by £0.7 billion to £5.9 in September ... the lowest September for ten years. Year to date spending was £32.5 billion, down by £2.5 billion prior year.
The OBR is forecasting a deficit of £58 billion in the current year. Simple extrapolation would suggest £42 billion would be nearer the mark. Just as well. Net debt is £1.8 trillion up by £140 billion on last year. The OBR will revise figures ahead of the budget next month. No matter the quantum, the funding challenge for Treasury and the Debt Management Office will continue ... a rate rise can only assist the process ...
The Saturday Economist
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