By Caroline Grady 31-01-2020

Chancellor Sajid Javid Talks Up The Economy, And What’s Next After Brexit Day (UK Politics, Financial Times)

(24 min listen)
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Summary (You can listen to the podcast by clicking here)

• Recent good news on the economy with a post-election bounce in sentiment. PMIs improved while consumer spending (housing, car sales) picked up. But it’s not yet clear this will translate to faster real activity on the ground.

• Javid targeting a return of long-term sustainable growth back to the 2.7-2.8% pre-crisis average. His focus on skills and infrastructure will only pay off long term, however, leaving any near-term acceleration in growth unlikely. Javid’s March 11 budget is important in determining any near-term fiscal boost.

• Treasury’s infrastructure rule book is being rewritten in an effort to level up the regions.

• Reasonable to pivot viable infrastructure projects to outside London even if returns are lower (but positive). But there could be a trade-off with wider UK growth.

• Cabinet reshuffle is anticipated, Javid is expected to hang on.

• Downing Street will acknowledge Brexit with a light display in Whitehall and a countdown clock marking the moment when the UK officially leaves the EU. PM will host a special meeting with the Cabinet in the north of England, discussing levelling up of the regions.

• Big push will come in March as the mandate for trade talks is finalised. June will be next pinch point as PM Johnson will face a deadline on the possibility of extending the transition period past year end.

• Business uncertainty will continue until the new trading environment with the EU is confirmed.

 

Why does this matter? Brexit day will mark the beginning of a long process in the UK’s future relationship with the EU. Business sentiment may have improved following the Conservative Party’s emphatic win in the December election, but prolonged uncertainty remains. The weakness in business investment since the 2016 referendum will have a long-term effect on the economy that cannot be easily unwound. Javid’s first budget in March will be a key test of the government’s commitment to raising the country’s growth rate through higher investment.