It may have seemed a good idea, walking in Snowdonia with a spring in your step and a twenty point lead in the polls. A snap election would provide a clear mandate for the difficult Brexit negotiations ahead. The Prime Minister made the call. It was not to be.
Theresa May lead a disastrous campaign with a manifesto offering "Sky Blue Thinking With A Hint Of Rosé". A highly personalised campaign offered more austerity with a hint of tax rises and the prospect of balancing the budget by 2025! A dementia tax, an attack on school lunches, more cuts in police services offset by a free vote on fox hunting! How the young people would follow that particular drag hunt. Businesses were concerned by the intervention on board room pay and governance. And what of the the immigration tax on foreign workers? This to follow the payroll tax disguised as the apprenticeship levy. May's addiction to UKIP extinction ignored the attack on the higher education sector. The inclusion of student numbers in the immigration stats meant the Tories were planning cuts in overseas revenues for universities around the UK.
The poll proposition was myopic and misguided. Voters on a Left Right Axis were offered the chance to vote for the singularity of Brexit. Labour offered clear socialist direction, closeting the leader for the main part of the campaign. In the end, Corbyn enjoyed a magnificent defeat. Held back from a march on the Palace demanding the right to form a government as the biggest loser, here was a man who looked to be enjoying the rôle of leader for the first time ever.
So what happens next? A hung parliament, a minority Tory government supported by the DUP and a Prime Minister mortally wounded limping on for a few months at best. The time is right for Boris to take centre stage perhaps. If only he would tweet more in Latin and Greek, featuring on Facebook and SnapChat to speak to the young people ...
So what happened in the economy this week ...
Manufacturing slumped in April according to the latest ONS data. The year on year rise was zero, following growth of over 2.5% in the first quarter. It was a statistical quirk in part. April 2016 was a particular high month. For the year as a whole we expect growth of 1.4% compared to growth of 0.8% last year.
Car sales in May fell by 8.5% according to the latest SMMT data. It is a concerning development at first sight. The slump largely explained by a drop in diesel car sales of 20%, Mike Hawes of the SMMT suggests the budget and the pull forward of sales into the March data may still be impacting on forecourts. We expect car registrations to remain at prior year levels for the rest of the year, with no real growth in prospect. For the year as a whole we expect new car registrations to be around 2.7 million marginally ahead of 2016.
Halifax added to the housing gloom this week. House prices in May increased by just 3.3%. The data follows the Nationwide release last week. Affordability is impacting rather than a slump in sentiment and appetite for home ownership. We published our housing review last week. The Halifax data largely anticipated.
The service sector disappointed slightly in the latest Markit data, "Service Sector Slows in May" the headline. The headline index slowed to 53.8 from 55.8 in April. New business appeared to be the challenge as uncertainty over the election impacted. No real cause for alarm perhaps. Underlying growth remains strong and consistent with growth in the economy of around 2%.
Consensus forecasts suggests the economy will grow by just 1.7% this year and by 1.4% in 2018. In our latest update, we expect growth of just over 2% over the period. The election result creates a clear challenge to business and consumer confidence. The prospect of a hung parliament, leadership change and a further election before the end of the year won't really help ...
The week in markets ...
Markets were hit by the Comey testimony in the US and the election result in the UK. Sterling took a hit against the Dollar and the Euro. The FTSE and the DOW were unsettled but rallied at close of week. Profit taking in US tech stocks hit Facebook, Apple and Amazon at close.
That's all for this week. Our Economics Forecasts for June will be released following a few tweaks post election ...
© 2017 John Ashcroft, Economics, Strategy and Social Media, experience worth sharing.
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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.