Time to invest in growth
AS WE move towards the November 23 Budget there will be much talk about a post-referendum reset of fiscal policy. Momentum in the UK economy has been speedily restored since the vote on June 23 as the latest labour market data shows employment increasing by 174,000 over the past three months.
The more forward-looking claimant count, which measures the actual number of people on the dole, also dipped marginally in August.
Moreover, it is always worth reminding staunch Remain voters that at 4.9pc of the workforce, Britain’s jobless rate is half that of the eurozone, at 10.2pc.
What we cannot be sure of, however, is that the summer bounce will be sustained as we enter two years of complex negotiations with obdurate Brussels eurocrats with no one fully assured of the eventual outcome.
The Bank of England is doing its best to secure output and jobs with the cut in base rates to 0.25pc and its government stock and corporate bond-buying spree, designed to keep money markets, where banks and corporations lend to each, other well lubricated.
But as governor Mark Carney has reminded colleagues, Brexit is more of a test match than a T20 game.
Philip Hammond and the Government need to put in place a robust fiscal response to Brexit based on investment. No one can expect bond yields to remain low for ever but there was never a better moment to lock in finance for big projects.
Pension and infrastructure funds are hungry to invest in long-term facilities.
There is an opportunity to finance big infrastructure with the issue of bonds with 30year, 50-year and even 100-year maturities.
Record low interest rates will not last, but if ever there was time to take advantage of tiny coupons on government securities, with the safety net of Bank of England quantitative easing behind them, it is now.
HM Treasury is often very nervous about long-term borrowing and the negative impact on the public finances. Hammond needs to override this caution and can quote the International Monetary Fund, World Bank and hedge funds masters of the universe, such as Paul Singer of Elliott Advisers, in support. It is bonkers that public- sector pension liabilities, a huge burden for future generations, are unfunded and not fully accounted for, whereas big investment projects such as new nuclear power stations and HS2, that will benefit future generations, do appear in the public accounts.
The Pensions and Lifetime Savings Association, Legal & General and others are hungry for good infrastructure projects to invest in. There might even be public appetite for putting money into airport, railway or housing bonds. Certainly, the London Stock Exchange would welcome the opportunity to trade such instruments, to create indexes around them as well as derivative contracts.
None of this has to await the Brexit negotiations. A start should be made in the Autumn Statement creating a safety net for jobs and growth as the nation enters an era of turmoil and transition.
Big deal
THE £49bn offer by German behemoth Bayer for Monsanto sets a record for a cash deal.
It joins another huge life-sciences buy-up in the pending tray – China National Chemical’s offer for Switzerland’s Syngenta. Both face considerable regulatory obstacles.
The Bayer offer for Monsanto, one of the pioneers in GM food, is certain to be scrutinised by the US Committee for Foreign Investment and will be examined by competition regulators in Brussels. Given Monsan- to’s contentious monster food history (Bayer’s past is tainted with IG Farben) the deal might also anger eco-warriors.
The Syngenta merger also faces some tough scrutiny. Anything involving China needs careful study because of the risk of technology transfer to the People’s Republic. It is a deal in which the UK has a legacy interest because the Swiss firm absorbed the fertilizer and agricultural interests of ICI when it was dismantled in the Nineties.
We know from work by McKinsey, among others, that such giant mergers are born out of frustration with a lack of organic growth.
Rarely do they create value.
Apple tonic
IN A choppy week for shares, one stock has defied Wall Street turbulence. After a period in the doldrums, Apple climbed 9pc.
Its latest launch, the iPhone 7, may not have rave reviews, but advance orders from network operators are reportedly four times higher than the previous phone launch, despite the lack of a headphone port.
Among the main drivers appears to be Samsung’s embarrassment over exploding lithium batteries on its Galaxy Note 7.
Apple is also reportedly receiving a boost from the availability of Pokémon apps through the Apple Store and the decision to refurbish the disappointing Apple watch as a free- standing health device directly challenging Fitbit among others. It’s an ill wind that blows nobody any good.