The Week: All eyes on UK Parliament

While other things certainly happened this week - sliding global manufacturing, a crisis in Argentina - all eyes were on the UK parliament. 

  • The Chancellor Sajid Javid declared an ‘end to austerity’ with a fresh round of spending plans
  • The UK economy is struggling with weakening consumer spending and sliding manufacturing
  • It’s hard to see a good outcome for the UK economy in the short-term

Sterling saw a rollercoaster ride, as Boris Johnson, then Parliament, then Boris Johnson appeared to be in the ascendency. We ended the week none the wiser about whether we would leave the European Union at the end of October.  

The Government tried to sweeten the blow with a fresh round of spending plans for the UK economy. The Chancellor Sajid Javid declared an ‘end to austerity’, while still promising that he would stay within prescribed spending limits. Schools, the police, the NHS would all be beneficiaries, he said.

The Institute for Fiscal Studies was something of a party-pooper when it pointed out that spending would still be 3% below its level a decade ago, and more than 9% lower in per person terms: ”Real spending outside the Department of Health will still be 16% lower (21% lower in per person terms) next year than in 2010−11.” 

Where does the UK economy go from here? A few things are evident: first, that there are problems. The consumer has been propping up the UK economy and it’s not clear that it will continue to do so. The latest British Retail Consortium numbers show like-for-like sales in August falling 0.5% compared with a year earlier in spite of a rise in food sales. In the meantime, manufacturing has fallen to its lowest level since July 2012.

Second, love or hate Brexit, it’s probably not going to help in the short-term. There could be a WTO paradise at the end of a no deal Brexit, but it’s going to take a little while to achieve. Companies may come to Britain because it can offer flexible new trading terms, but it’s quite the gamble and even if it comes off, it’s going to take some time to become reality. 

A big ol’ round of spending may help. On the other hand, it may just add to the UK’s vast structural debt and create a horrible hangover for an incoming government. It is difficult to see a good outcome for the UK in the short-term. With that in mind, even though some suggest there is wonderful value in UK domestic stocks, it is hard to see how it will be realised in the short-term.