The tide is turning for the better

IT IS time to reflect. It has been a tumultuous year and for many people a troubling one. But now that UK politics are sorted there is a chance to think about other things. The future relationship with Europe will remain cloudy until the trade deal is done, but it is so massively in the self-interest of the European Union to agree a deal that will surely happen. So what other things should we be reflecting on?

The biggest change will be the UK ceasing to be unfashionable. The string of negative comments, however absurd, have inevitably chipped away at the country’s image abroad. Money stayed away. That is now changing.

Legendary US fund manager Stanley Druckenmiller told Bloomberg last week he was buying both sterling and British bank shares. Back in 1992 he was working with George Soros when they ‘broke the Bank of England’ by taking a huge bet the pound would come out of the European exchange rate mechanism. That was Black Wednesday. Now the historic bear of sterling has become a bull. Others will follow. Look around the world and where else can you get the combination of a stable government, an undervalued currency, and a dividend yield of more than 4 per cent from its largest companies? There is a wall of money waiting to invest. Where will it go? One obvious place will be blue chips, the banks, the oil giants, the pharmaceuticals and so on.

The FTSE 100 index is up 18 per cent on a year ago, but has lagged other markets. The Dow is up 27 per cent. Less obviously, I understand a lot of foreign investors, particularly US ones, are eyeing up medium-sized British firms that have special expertise or a special market segment. Expect a spate of foreign bids, and while that can be seen as a vote of confidence, it also carries a risk. Do we really want our fastest-growing companies taken over?

Money will also go into fixedinterest securities, including gilts. There will be plenty of those on offer – one of the uncertainties is whether this new Government will open the spending taps so much as to frighten investors. A fiscal deficit of 2 per cent of GDP is all right, though higher than last year. If it goes up much more, start to worry. We don’t want another Gordon Brown blowout.

And inevitably money will also go into property. Commercial money will go into commercial property, particularly outside the South East. Private money will naturally go into residential property, though probably not until our new migration rules are established and their impact has settled down.

Confidence will not return in a straight line. We saw that with sterling. After the Election it shot up to $1.35. Now it is back down, depressed by stories that the Government wants a hard Brexit. The negative mindset lingers, and will do through the months ahead. But some caution surely is better than overconfidence. Confidence is good but competence is better. The Government has announced a huge raft of programmes for the coming decade, mostly welcome. But it needs to carry though those programmes in a sensitive, thoughtful and effective way.

A WELCOME to Andrew Bailey at the Bank of England – for three reasons. First, he is an insider, having worked for the Bank (although most recently the

Financial Conduct Authority) for more than 30 years. Sometimes people are parachuted into organisations from outside. But it is better, when possible, to recruit from within – you know what you are getting. It is better too for internal morale, for outside political appointees undermine staff ethos. And insiders know the organisation backwards. They don’t have to learn on the job.

Second, Andrew Bailey is personally liked. Someone who worked closely with him told me the great thing was you could have a proper, thoughtful conversation with him. Being liked is a great strength in a leader because your people will pull out the stops to help.

Thirdly, this is a signal to the world. It is Boris Johnson’s first big appointment since the Election. This is not a political appointee, chosen to toe the Government line. As mayor of London Boris picked good people and let them get on with it.

This is a good choice.

We have a stable Government and a wall of money waiting to invest