After the uncertainty: more uncertainty

9 January 2020

Britain, as you may have heard, has had its fair share of political upheaval and public votes in the last few years. Three general elections, one advisory referendum on whether to leave the EU or not, and a lot of debate, both amongst the public and the politicians.

Now, we’re promised, comes an end to the deadlock and an end to the uncertainty that’s been hanging over the UK for the past three and a half years. I’ve spoken to plenty of British businesses during this period, and many people in our industry commented that not knowing what was happening with Brexit was resulting in potential investments being withheld, both domestically and from overseas. People wanted to spend money, was the general consensus, but were holding off doing so until the landscape became more clear.

Now the UK has a Conservative majority, which focused its election campaign almost exclusively on ‘getting Brexit done’. Simple enough, you would think, given the Prime Minister’s insistence throughout the campaign that he had an ‘oven-ready deal’ waiting to go. The value of the pound increased following the election results, and Britain looked set to finally move on to its next era within 12 months.

Less than a week later and the outlook was slightly less clear, however. The value of the pound fell back down to pre-election levels, and Johnson announced plans to pass a law enshrining the 2020 Brexit date, giving rise to concerns that a ‘no-deal’ Brexit may still happen and with it, the multiple percentage-point decline in GDP predicted by economists.

It’s also hard to predict where on the political spectrum Johnson will position himself. He famously wrote two articles prior to the EU membership referendum, one outlining his reasons for supporting the Remain campaign, and one his reasons for supporting Leave, then chose which one to publish after seeing which way the wind was blowing. Johnson has promised to spend on public services, and in the north of England where his party gained unprecedented support, and it’s easy to imagine that he may embark on a spending splurge in the coming years to ensure that Brexit is seen to have been a success.

Where that money comes from, though, is hard to see—the Conservatives are a friend of big business and the UK is now unlikely to raise corporation tax to a level near that of leading European nations, nor will the country be obliged to follow the EU’s law, set to come into force this month, clamping down on offshore bank accounts, removing another potential source of tax revenue. And with economic growth at its slowest since early 2009, the government may instead continue with austerity measures, despite the policy—as the International Monetary Fund warned it would—seeing the country’s debt double in ten years.

However, a spending spree in public services— combined with an increased minimum wage, as the government mooted before the election—would give consumers more money to spend, thereby stimulating the economy.

Interesting times indeed—and the forecast seems to be for further interesting, and uncertain, times to come.