Brexit Bear is waiting for the UK negotiating position, and considers where recent news may be leading us, contradictions and all

20 Jul 2018

As Summer rolls along, with those long, lazy days of Euro-posturing while the UK negotiates from a cunning position of undefined policy, Brexit Bear wonder if Euro-fundge will work, given that nobody wants a “hard Brexit” but the UK can’t put its cards on the table until somebody find the deck.

The financial secretary to the Treasury has said cutting corporation tax will be Britain's key to success after Brexit. Conservative MP Mel Stride said bringing corporation tax down to 17% by 2020 was vital to keeping the UK competitive after it leaves the EU. How about making things that people want? Brexit or no Brexit, the UK has to recover from the Industrial anarchy of previous decades. Tax cuts sounds more like dogma that strategy at this stage, as least to a bear of ordinary brain.

Britain’s economy showed few signs of improvement in the second quarter, according to the Bank of England agents’ report into business conditions, which saw economists cut their 2018 growth targets. Bank of England Governor Mark Carney has asserted that the Brexit vote has already knocked around 2% off the size of the UK economy, a sum equivalent to around £40bn, or £900 per household. Speaking to the Treasury Select Committee, he said the economy is up to 2% lower than it "would have been". However, his analysis has been disputed by economic adviser at Arbuthnot Banking Group, Ruth Lea, who said Carney had been “misleading at best” adding: “Unemployment is down to 4.2%, spare capacity is presumably very low - you would expect a slowdown in the economy. We’ve got a mature recovery and full employment. Is this expected? Yes it is. This is not a sign of Armageddon, it is in the natural course of things.” Elsewhere, Julian Jessop at the Institute of Economic Affairs said higher inflation and lower investment would only have hit GDP by up to 1%, rather than 2% and that any fall in investment was temporary or reversible – dependent on certainty around the future deal with the EU. Ian McCa fferty, outgoing member of the Bank of England’s Monetary Policy Committee, has said that Brexit is stunting capital investment and holding back UK productivity growth. Mr McCafferty also warned that inaccurate forecasts and statements from the BoE present serious issues for trust in the institution.

Public sector net borrowing in the UK dropped by £5.7bn in the last financial year to its lowest level since 2007, according to the ONS, which pegged borrowing at £40.5bn - £4.7bn less than expected by the Office for Budgetary Responsibility. Public sector net borrowing decreased by £1.6bn in April 2018, compared with April 2017, while the deficit now stands at 2% of GDP - the smallest budget deficit as a share of GDP since 2002. Tax receipts rose 3.4% to a record £701.8bn. Corporation tax receipts rose 6.3% to £57.7bn while receipts from income tax and capital gains tax jumped 12.3% to £12.8bn last month as record levels of employment boosted Treasury coffers. VAT receipts rose 2.8% to £11.5bn.

Over 150 top German economists have said Emmanuel Macron’s vison for eurozone integration, backed by European Commission President Jean-Claude Juncker, will promote a union of liabilities that “threatens prosperity throughout Europe”. They instead call for a "return to the basic principles of the social market economy" and “an orderly insolvency procedure for states and an orderly withdrawal procedure.” The creation of a European Monetary Fund would be ineffective, they add, while creating a bigger backstop for the Single Resolution Fund will merely “reduce the incentive for banks and regulators to clear bad loans”. The appointment of a European finance minister would “make monetary policy even more politicised,” the economists believe. If only our Previous Prime Minister had had a modicum of vision beyond UKIP, maybe we could have done something with this…

Meanwhile, confidence among small UK businesses about their future has risen in the past three months, according to the Federation of Small Businesses’ latest small business index. About a third of small businesses expect their performance to improve over the next three months and the number of small firms seeing steady or increasing profits is at a 12-month high, the FSB found. Writing in the Telegraph, FSB chairman Mike Cherry says the government must pay attention to the views of SMEs if Brexit is to be a success.

Is Chequers easier than Chess?