Turbot and Fudge puts Brexit back on track ...

It all looked so gloomy on Wednesday. A Brexit deal agreed, the announcement to be made. A fine meal of scallops with butternut cream, turbot in a herb crust and tarte tatin with cinnamon scented ice cream preceded. The Irish question had been resolved or so it seemed. The DUP were uninvited to the feast. Arlene Foster had not been consulted. The deal on the table collapsed when the Ulster MPs realised they were unaligned. Theresa May faced humiliation ...

Dissent on the back benches emerged, a vacancy in Number Ten loomed by Christmas. Then Juncker came to the rescue with help from Leo Varadkar, the Irish PM. May bounced back ...

Flying in from Brize Norton, Theresa May was back in Brussels for breakfast on Friday. Fudge for breakfast and the difficult question of the Irish border was resolved. The words 'regulatory alignment' had been replaced with 'alignment with the rules of'. Alignment did not entail any harmonisation with the EU. That would be convergence, which would be unacceptable. Rather, we would have a number of regulations that would look very much like the EU regulations but would be special British regulations. Regulatory alignment is not the same as harmonisation which is too close to convergence. This had been made clear but more was required.

In the final deal, it was confirmed, there will be no hard border in Ireland. The whole of the UK including Northern Ireland will be leaving the EU and the customs union. However, the UK will ensure full alignment with the rules of the customs union and the single market, upholding the Good Friday agreement. No regulatory barriers will be allowed between the Northern Ireland and the rest of the UK without the agreement of Stormont. Confused? Who would not be ...

"Constructive ambiguity" is now replaced by "Strategic Ambiguity". Incompatible objectives were reconciled with a fudge served in a fine word wrap. "At least there is no red line down the Irish sea" explained the DUP leader. Yes, and Theresa May can't walk across the waters just yet.  "There are still matters we would have liked to see clarified but we ran out of time essentially". "We need to go back and talk about these matters again" Foster added ominously.

Ah yes, nothing is agreed until everything is agreed, the mantra. For the moment we are leaving the EU and the customs union but we may ensure "full alignment" with rules and regulations where necessary. The money has been agreed. It could be as much as £50 billion but we may never know. EU citizens rights are guaranteed, subject to ECJ law for the first eight years. A two year transition deal will take place which will push the departure date into 2021. Lots of time for business to adjust, for what as yet, we do not know.

At least it will give government time to make some impact assessments. In June, David Davis had assured all there were almost 60 industry sector impact assessments,“In excruciating detail.” he added in October. In November he confessed “It is not the case that 58 sectoral impact assessments exist", explaining in December in front of the Brexit committee of the house “Just because you use the word "impact" doesn’t make it an impact assessment.” Excellent. "It's just strategic ambiguity" he should have added.

The good news, "sufficient progress has been made to move to the next stage" says Juncker. Now Cabinet must meet to work out just what the next stage is. Just what is the "deal", for which we are going to ask. Surprisingly Cabinet has not met to discuss this as yet .

Should we be concerned? Well yes. An agreement to stop disagreeing is not the basis for final agreement with the EU, the DUP and the Tory Eurosceptics ... Nevertheless business will be reassured by the agreement on EU citizens, the transition phase and the prospect for fudge in any final deal on trade ... no need to pack up and leave just yet ...

Economics news this week ...
Manufacturing received a boost in October. Growth in the month was up by 3.9% on prior year, according to the latest ONS data. A boost from oil and gas output, up by 18% and a strong surge in capital goods by just over 8%, were responsible. Don't get too excited, for the year as a whole we expect manufacturing output growth of just 2.2%. Consumer goods output increased by just 2%.

Trade figures received a boost in October, that and a revision to earlier data in both this year and last. The total trade deficit narrowed by £2.7 billion to £5.0 billion in the three months to October 2017. This was due mainly to goods exports, which increased 3.8% to £88.6 billion. Unspecified goods (particularly non-monetary gold) were the main contributor to the increase. The UK is benefiting from recovery in Europe specifically and the growth in world trade more generally.

For the year as a whole we now expect a deficit (trade in goods) of £135 billion broadly in line with prior year. The service sector surplus could now be as high as £110 billion. The combined deficit could fall to just £25 billion compared to a £41 billion deficit last year. This is good news for growth and for Sterling.

Survey data from IHS/Markit CIPS suggested construction activity in November was rising at the fastest rate for five months boosted by the growth in housing. Commercial and infrastructure activity continued to decline.

Service sector growth eased back in November from October's six month high. Price hikes and inflation were evident in the survey. Underlying inflation is likely to exceed the Bank of England 2% target for some time to come ...