What we need now is stability and certainty
BORIS JOHNSON WON A “SEISMIC” GENERAL ELECTION VICTORY BUT WHAT DOES THAT MEAN FOR BUSINESS, BREXIT AND THE ECONOMY? A PARTNER AT HUDDERSFIELD-BASED INSOLVENCY PRACTITIONERS POPPLETON & APPLEBY OFFERS HIS THOUGHTS
UK plc has got a majority government at last and a reliable prospect of an end to three years of indecisiveness that has beleaguered its economy. The stalemate is ended.
While there will be many voters who will have decided where to place their cross on the ballot paper based upon local issues, not since the time of Margaret Thatcher has the outcome of a General Election been anywhere near as decisive on issues that affect the UK at large, its economy and its place in the world as much as this.
Boris Johnson took a chance pushing for yet another election, but he did so having made sure that the so-called Tory rebels had been ousted or effectively neutralised in the process; this means that the UK now has what it really needed regardless of where your party political allegiances reside, a decisive outcome so that the economy at large and the confidence of the public in the process of government is restored.
In the short term, this means that there is a much higher likelihood that the agreement which Boris Johnson has already reached with the EU will be approved if time permits in the house between now and the January 31 deadline.
It is now unlikely but, if the deal isn’t approved by parliament before then, the UK will still crash out of the EU with a so-called “hard
Brexit.”
That still doesn’t mean that everything is now going to be fine; once ratified we have until June 30 in which to agree a trade deal with the EU and that will not be a straightforward process.
Brokering an EU trade deal will not be simple, but there is an existing and workable framework in which we already operate, and the trick will be retaining as many of the benefits that we already experience from being in the EU but without being forced to retain too many of the constraints, which this particular government has already made clear would be unacceptable.
At least the UK negotiators can now have the confidence of knowing that for the time being our internal political stalemate has been sent packing and they can negotiate assertively.
If a trade deal can be agreed in principle by June 30, we then have until January 2021 to get it ratified across the UK and the EU.
This transition period can be extended, but it is fundamentally important that the UK political scenery remains stable throughout this phase, otherwise there is still a remote possibility that the UK could be outside the EU without a trade deal and effectively we would still have a hard Brexit. Many larger enterprises in the UK and so-called big businesses claimed not to be supportive of Brexit, and perhaps that is understandable given their scale and relative inertia.
Brexit involves a need to adapt rapidly to change and that presents unwanted expense; however, many smaller businesses and seemingly the majority of the population at large now feels (regardless of whether not they initially supported
Brexit) that now is the time to have clarity, or at least to give the politicians the opportunity of achieving the certainty and the positivity of the promised future propounded by the likes of Johnson and to some extent Nigel Farage.
Achieving a satisfactory trade deal with the EU and other parts of the world will be a significant milestone for the UK economy, and it is likely that until that happens, we will not really have certainty in our economy. However, we do at least now have the game plan to get there; we are effectively on the first square of the Ludo board, and the speed of a progression really depends upon how many of the players within the new majority government remain consistent players and don’t take the opportunity now to use their resurgent power as an invitation to flex their individual political muscles.
Policy issues around future trade, especially where these may affect larger constituency elements of some of the newly reappointed Conservative MPs, could still present a headache for Mr Johnson’s government.
What then can we expect in the weeks and months to come?
I firmly believe that the UK economy has been in a form of recession for at least the past three years. The UK economy is overdue some rebalancing, and while there is almost certainly going to be a positive bounce as a consequence of this result, some elements of the UK economy are overheated, and something will eventually have to give way.
So, improved confidence should lead to a better performance in retail markets, but if that creates inflationary pressures we will then see interest rates rise; this will impact borrowing and potentially cause problems for a stuttering housing market. We can expect the value of Sterling to strengthen, and that will also impact our exporting businesses and tourism.
In simple terms, we can expect short-term economic improvements but, as the Brexit train rumbles on throughout 2020 ahead of a formal trade deal, it is far more likely that our recent experiences of “normality” will eventually be restored and uncertainty will preside.
There has undoubtedly been a seismic change in the UK political landscape, but I doubt that economic impact will be as significant or lasting. In the Brexit journey, we still have many hurdles to cross, and if we believe that it is the single most significant event impacting the UK’s economic stability, we are fooling ourselves.
Brexit remains a diversion from normality, and there are far more significant world economic and environmental events to be concerned about as far as our longerterm futures are concerned.