Champagne at the ready in City beset by troubles
AFTER several days of sheer misery caused by a worsening pandemic and the scenes of truck chaos at Dover, the financial markets and businesses nationwide may have something to celebrate.
A reason, at last, to start putting the Champagne on ice.
True to form, with a final deadline looming for a new UK-European Union trade accord, Prime Minister Boris Johnson and EU President Ursula von der Leyen appear to be ready to pull a deal out of the hat.
All of the stop-go rhetoric of recent weeks and the whingeing by big firms are set to be silenced by an agreement which effectively means no physical tariffs and minimal quotas in our future trading relations.
The deal may not have been ‘oven-ready’, as the PM once described the Brexit withdrawal agreement. But after the brutal curtailing of Christmas trading, if agreed, it should help restore some of the business confidence which evaporated in the face of Brexit uncertainty and the pandemic.
London’s financial markets normally close early on Christmas Eve with very thin trading. But if a deal is put in the bag, I fully expect share prices in London to soar today after a year in which they have badly lagged behind New York, Tokyo, Hong Kong and major European markets equally impacted by Covid.
Certainly, as hopes rose yesterday for a deal, stocks were on the rise.
The troubled interregnum since the 2016 EU referendum has cast a long shadow over corporate Britain which is now set to be lifted, boosting the value of shares held in pension funds, ISAs and other savings products held by millions of Britons.
In spite of some orchestrated pessimism, the prospect of an agreement has been driving the pound higher on the global currency markets for the last ten days.
Currently trading at $1.35 against the dollar, it is at its highest level in two-and-ahalf years. City forecasters are confident it will go higher still, perhaps touching $1.40 by year- end. The buoyancy of sterling reflects the widespread view among traders that as the NHS mass vaccination programme gathers pace and if a robust trade deal is in place, the UK’s resilient economy can bounce back strongly from the Covid19 shock of this year.
Indeed, leading forecasters Oxford Economics argue that the vaccine rollout across the globe in 2021 will jet-fuel output to deliver the fastest recovery in more than 40 years.
Even before a possible UK-EU trade deal is signed, the International Monetary Fund was projecting that the UK would enjoy a strong recovery in 2021 with output soaring by 5.9 per cent. This reflects the confidence that in spite of the pressure placed on the public finances by measures to tackle the pandemic – including that £2trillion debt pile – Britain’s flexible economy is more than capable of muscular recovery.
Yes, the retail and hospitality sectors have been hard hit and tens of thousands of people have lost their jobs so far. Many more will follow. Despite this, the UK ends the year with a much stronger jobs market than anyone expected.
An unemployment rate of 4.8 per cent at the end of November shows our economy in an infinitely better position than the rest of Europe where the jobless rate is almost twice that level, at 8.4 per cent of the workforce. Chancellor rishi Sunak’s promise to save jobs through the furlough scheme, the kick-start plan for young people and other measures appears to have worked its magic in limiting the broader scarring to the economy.
However, reaching a trade deal with Europe is essential to the UK’s future prospects as the Johnson government seeks to fulfil its pledge of ‘Global Britain’. The EU comprises 55 per cent of the UK’s trade in physical goods ranging from cars to pharmaceuticals and 44 per cent of its services. IT is also worth noting that amid the long, late nights of haggling over fishing quotas and mutual recognition of trading standards in Brussels, the UK has been busy concluding free trade agreements with some 58 countries and counting, from Switzerland to Mexico, Singapore and Japan.
We should not f orget that Britain excels in science – from pharmaceuticals to cutting- edge technology – as the pandemic has demonstrated, while servi ces comprise almost 80 per cent of national output.
For example, the finance and professional services associated with the City, from law to accounting and consulting, employ three million people and account for more than 7 per cent of total output.
Creative services ranging from the design of video games to publishing make a similar contribution. Contrast that against a mere 0.12 per cent for fishing.
Now, with the uncertainty of future UKEU trade relations set to be removed, consumer and business confidence should rebound, releasing the £100bn of savings built up in the pandemic.
At long last there is brighter light at the end of what has been dark and winding tunnel – and a merrier Christmas than we believed possible just 24 hours ago.