The Prime Minister was in China this week. The Chinese like Theresa May. Her tag on social media is "Auntie". She drinks tea politely, never from the saucer and doesn't lecture on human rights. That's very important when securing a trade deal.
Yes we have a trade deal for truly global Britain. Shredded British Beef is back on the noodle menu after a twenty year absence. The trade team secured a further £9 billion of orders to takeaway. Excellent.
Tea with President Xi, a visit to the Forbidden City, a military parade and stroking Chinese dragons. It must have seemed to be a world away from the chaos in cabinet as the "anarchic anomie" continues. Back in the UK ...
Tory dissidents appear to have pulled back from the brink of a "no confidence vote". No more signatures to Graham Brady, the Chairman of the Tory back bench committee. No challenge for the leadership. Who would want that challenge right now? The Tories fear a drubbing in the local elections, especially in London.
Tensions are rising over the role of Boris (Toxic) Johnson in the campaign. No time to put Boris on the side of a double-decker bus with promises of cash for the NHS. The conservatives run ten London Borough Councils and some in the party believe they could lose control of every one, according to the Times today.
The Tory Europhobes have been tortured this week, by a civil service report on the impact of Brexit on Britain. It was leaked by Buzzfeed of all people. The report says Brexit will be bad for the economy, however the exit deal is cut with the EU. Britain will lose out, even if it manages to retain single-market membership.
Over the next 15 years, national income would be 8% lower under a no-deal scenario, 5% lower with a free-trade agreement and 2% lower with a soft Brexit option. No matter how you hack it, Brexit is bad for business and for the economy. You may query the accuracy of the numbers over a fifteen year span but the sense of direction is evident. It is an "objective" civil service report after all.
Attempts to discredit the report are disingenuous, especially from the likes of Jacob Rees-Mogg. Matthew Parris is more direct ... "Attempts to hide the true cost of Brexit are a fraud by a government that doesn't believe in what it's doing".
Gravity trade models rule in international business. Proximity, proclivity and proportion, dominate trade patterns. Tea from Tuanmen and beef back in Beijing will in no way compensate from the loss of trade with the EU ...
Construction growth fades ...
Construction growth fades to near stagnation in January according to headlines from the IHS Markit/CIPS (PMI®) this week.
UK construction companies reported a subdued start to 2018, with total industry activity barely rising. A return to contraction in residential building activity was accompanied by near-stagnant commercial and civil engineering activity. New orders declined, linked by many companies to market uncertainty. Is it really so bad?
Growth had already faded in the final quarter of 2017 according to the preliminary estimate of GDP activity. Construction growth was just 0.6% after near 7% growth in the first nine months of the year. The good news, confidence remains high, many firms anticipate an increase in new project wins later in the year. We expect construction growth of 2.9% in 2018, down from the 5.6% recorded in the prior year.
The lack of significant government infrastructure spending will inhibit output growth. Central government interference is unlikely to help matters. Foreign home buyers will be blocked in a London ‘first dibs for locals’ plan from Sadiq Khan. House builders will be “asset stripped” under a government "use it or lose it" plan for land banks. Hardly the measures to boost confidence in the sector but enough to mask the real problem of the lack of public sector housing schemes in the age of austerity.
Manufacturing growth eased ...
Manufacturing output growth eased in January according to the Markit data. Manufacturing output continued to rise at a solid pace, although the rate of expansion eased to a six-month low. Higher production reflected rising new order intakes, albeit the slowest in seven months. The outlook for the year ahead remains positive especially in the export prospects for capital goods.
"Sector data suggested solid increases in output and new orders across the consumer, intermediate and investment goods sectors. Rates of expansion were higher in the capital goods compared to those at
consumer and intermediate goods producers."
"Foreign demand improved at one of the quickest rates over the past four years. There were reports of increased sales to North America, China, mainland Europe, the Middle East and Japan". The surge is a reflection of the strength of world economic growth and the uptick in world trade. World trade was up 5% growth in the final quarter of 2017.
For the year ahead, we expect manufacturing growth to slow from 3.2% in 2017 to just over 2.5% this year. Export growth will remain strong but doubts about the strength of domestic demand and confusion about government strategy will inhibit growth especially in the automotive sector.
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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