OPINION | Economic Outlook
Prime Minister Theresa May
former PM David Cameron – and various obscure foreign-born executives were brought in to TechCity to talk up the sector – the results have been meagre at best. What finance directors should most worry about post-Brexit – and even before we exit – is whether the new PM Theresa May presses the ‘Reset’ button on the UK economy. Observers are increasingly certain she will end what Germans call the UK’s ‘casino’ economy of artificial, ultra-low interest rates, sky-high property prices, fearful trade deficits, a burgeoning national debt, and huge personal debt levels. That means a rise in UK interest
rates – most probably soon aſter the US Federal Reserve raises its Dollar interest rates, as it is widely expected to do aſter Trump’s triumph in this month’s rancorous presidential election. Mrs May will bring to an end the easy
finance available since Tony Blair came to power in 1997 – just the moment when the UK’s trade deficit, especially in manufactured products, grew calamitously worse year on year. Those who voted for Blair rather than the much-maligned John Major might take a look at the trade deficit level when Major leſt office, and the level when Gordon Brown leſt office nearly 20 years later. As a result, Brexit may inadvertently
force a new fiscal reality on the new UK government. Brexit may halt the massive over-borrowing of the Cameron-Osborne clique – which is as unsustainable as those of Blair-Brown. Vanity projects such as HS2 may probably be scrapped – the current ticket price is £500 one way – and lower, better targeted investment will be
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spent instead on vital rail infrastructure improvements – extra tracks north of Kings Cross, eliminating bottlenecks, building new cross-overs – that make a big difference. The UK economy may move away
from the current over-dominance of the property and finance sectors, and on large corporates, and focus on mid-sized and SME companies, especially in manufacturing and engineering, and especially those which buy UK-made goods.
What finance directors should most worry about post-Brexit – and even before we
exit – is whether Theresa May
presses the ‘Reset’ button on the UK economy
As one observer said “Until interest
rates rise to 6% manufacturing will never be as competitive as an asset class against property investment, which is cheap and relatively tax-free.” In the run-up to the Brexit vote those wishing to get out of the EU protested against the UK government’s ‘Project Fear’ campaign – a litany of disasters and black
holes that they said would inevitably overwhelm the British economy. One of the least likely doom scenarios involves Nissan, which exports huge numbers of cars to the EU. Its leaders had expressed fears it will be ‘locked out’ of the single market and it was no surprise to me that the company agreed to expand its operations in Sunderland aſter assurances that the UK government was committed to securing continued tariff-free access to EU markets. It shows that business holds the trump card as we plan for a post- Brexit world.
In addition, what is the likelihood that the 750,000 jobs in south Germany that depend on exports of Mercedes and BMW cars to the UK will be jeopardised by a block on the trade by any future German government? Near zero, one can predict. Overall, what pro-EU organisations such as the EFF and the CBI don’t seem to realise is that around half of British engineering and manufacturing is already owned by foreign companies. Most are highly profitable. In total foreign firms own more than £120bn in UK-based industrial assets. Giving them up on the command of some EU politician is unthinkable. In little more than two years time – when the UK exits the EU, and with the trade threats from EU leaders ringing in their ears – many British people will be wonder why we didn’t leave the club many years earlier. Q
Marcus Gibson is a former Financial Times columnist and is editor of the UK SME database Gibson Index
DIRECTOR OF FINANCE 23
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