The Month That Was……August 2019

Historically, August is a dead month for economic / political news. Commentators, press / media and MPs vanish as part of the House of Commons break for a six-week summer recess.

 

But not this year. The small matter of BoJo being ‘elected’ as our new Prime Minister just hours before the recess commenced has ensured that the surrounding circus has been compelling.

 

As BoJo’s first month as Prime Minister passes, his performance has been nothing short of astonishing and ensured he is front page every day. As I said……compelling stuff.

 

Here’s how August 2019 will be remembered……

 

Brexit Narrative Change #1

The narrative from Number 10 has changed……Brexit will happen on 31 October 2019……deal or no deal.

 

August has been a month of BoJo and cabinet support crew filling as many column inches and media channels with one simple message…...all political and financial efforts are being made to prepare for a no deal Brexit.

 

Whether that is now having a clear plan to deal with the expected border chaos, having a sufficient bailout fund to prop up businesses through turbulent times or simply swelling the number of bodies in political teams to draw up contingency plans……the message from BoJo is clear……we will be ready for a no deal Brexit.

 

Regardless of whether we will be ready or not, at this stage matters little. As long as the narrative is that we are all set to leave without a deal, it should (in theory) strengthen our stance when negotiations recommence with our EU friends.

 

The EU are adamant that they do not want a no deal Brexit and they are not ready for such disorder. Yet ‘our’ new narrative will increase our negotiating hand.

 

And just to make sure the narrative is crystal clear……he has managed to play his political joker card (or should that be the Queen?) to shut down Parliament until 2 weeks before the Brexit deadline. Yes, it has sparked outrage. Yes, Jeremy Corbyn vows to fight suspension of Parliament (as it disrupts Labour’s plan to do absolutely nothing during that time). Yes, it seems undemocratic. Yes, it has split opinion across all four corners of the UK (but hasn’t Brexit done that anyway)? Yes, it has given air time to Jacob Rees-Mogg spouting 300 year-old constitutional law intertwined with pointless Latin. However, it has also put ‘no deal’ right in the faces of the people we are actually negotiating with.

 

The narrative of accepting a no deal Brexit could just be a brilliant idea…...as long as we do actually get a deal! Let’s hope BoJo understands that!

 

 

Brexit Narrative Change #2

The narrative has shifted with our biggest trade partner (after the EU) and best friend also……Uncle Sam.

 

The US have been very careful to sit on the fence with the EU and UK, thus ensuring they can trade with both successfully post Brexit.

 

But their narrative has changed when John Bolton (The Trump’s National Security Adviser) proclaimed to “enthusiastically back a no-deal Brexit and work with Britain immediately on sector-by-sector trade agreements”. There was a promise of a fast-track approach that would achieve progress more quickly than a comprehensive agreement.

 

“We are with you,” said John Bolton after meeting Boris Johnson. If the UK decided to leave with no deal “we will support it enthusiastically”, he said. “President Trump and I were leavers before there were leavers.”

 

Very bullish, very American. But critically, very helpful in supporting BoJo’s negotiating hand.

 

 

Short Term Pain #1

Whilst BoJo flexes his political biceps to fight them on the no deal beeches, the rest of the world looks on with great concern that he might actually go through with a no deal Brexit. To be fair, that is exactly what he is shouting from Number 10.

 

It is no wonder that the pound has fallen against the dollar to its lowest level for a decade ($1.20). To put that level in to perspective, the pound was trading at just below $1.50 against the dollar before Britain voted to leave the EU in June 2016. There would be little surprise from most commentators if that fell to $1 in a no deal Brexit.

 

This exchange rate has bigger knock on effects than our holiday spending money. A weak pound will drive up inflation as the cost of groceries, petrol, etc. will go up as the vast majority are purchased in dollars. We won’t feel it until next year due to the lag effect……but the threat is real.

 

 

Short Term Pain #2

The UK economy shrank for the first time since 2012 after data showed the economy shrank by 0.2% in quarter 2 this year.

 

It is the biggest sign of the critical impact to the economy that three years of Brexit procrastination has caused. Do nothing will cause uncertainty, it stops investment and makes the UK look unattractive to overseas economic mating partners. The biggest show of no confidence Mrs May’s term could receive.  

 

Another contraction of the economy in quarter 3 would see the UK officially in recession, and this would make us look even more fragile / unattractive to the outside world and the negative snowball gets bigger.  

 

If I was being ultra-positive……the negative economic data is similar in some ways to the previous one in 2012 which was pay back after the strong Olympics quarter. The current economic data could be mainly payback after pre-Brexit deadline stock-piling in quarter 1.

 

Time will tell, but plenty to concern us.

 

 

US v China (round 429)

The US trade dispute with China has now morphed into a currency war.

 

In short, to get around the tariffs that the US has put on China’s imports, China has purposely devalued its currency to weaken the impact of the tariffs. Clever. Very clever.

 

Steven Mnuchin, the US Treasury Secretary cried at the hand the US had been dealt……“The purpose of China’s devaluation is to gain an unfair competitive advantage in international trade”.

 

Unfair competitive advantage? What exactly does he think trade tariffs on China imports are? A fair advantage?

 

What does seem likely is that The Trump will use the cover of currency manipulation to intensify his battle with Beijing for economic supremacy.

 

The trade war is expanding into an all-out and open economic warfare and there are no winners for the rest of the world whilst the two largest economies don’t play nicely.

 

 

August’s Biggest Loser……Option 1 – Sajid Javid

As mentioned previously, the threat of recession is real as we have ticked one of the two boxes needed.

 

Sajid Javid, the new Chancellor, denied that the economy was at risk of entering a recession.

 

“I’m not expecting a recession, there is not a single leading forecaster out there that is expecting a recession, the independent Bank of England is not expecting a recession. And you know why they’re not? It’s because the fundamentals are strong”.

 

These ‘strong fundamentals’ are the same ‘strong fundamentals’ that have seen our economy struggle over the past year and see us within kissing distance of recession.

 

As the Chancellor, he has little power to influence the economy in the short term and simply denying the threat of recession is nothing more than positive guff that lacks credibility and treats us like children.

 

We are sick of political rubbish. We deserve better.

 

 

August’s Biggest Loser……Option 2 – Remain Leaker

The Sunday Times obtained the Government’s classified ‘Yellowhammer’ report in full that documents the most likely aftershocks of a no-deal Brexit.

 

The cabinet report confirms that Britain faces shortages of fuel, food and medicine, a three-month meltdown at its ports, a hard border with Ireland and rising costs in social care in the event of a no-deal Brexit.

 

The issue is not the report itself, as I would expect any organised Government to know the ramifications of a no deal Brexit. The issue is the remain-supporting MPs who, according to BoJo, deliberately leaked the details in an attempt to damage Brexit negotiations with European leaders.

 

Is this really in the best interests of our country? Remind me again who MPs are meant to represent?

 

 

August’s Biggest Loser……Option 3 – The Sunday Times

See Option 2. If there wasn’t a market for such moral corruption, there would be no report leaked.

 

And this is all completely legal and acceptable……apparently.

 

 

Word of The Month……‘Prorogation’

Definition (A): the action of discontinuing a session of parliament with the Queen’s consent.

Definition (B): BoJo causing a political meltdown not seen since……well…...errr……the referendum result.

 

 

And Finally……

The Treasury finally released the design for the new 50p to commemorate Brexit (to be released on 1 November 2019). Which got me thinking……we didn't have a new shilling to celebrate the Great Depression or a new ha'pence to celebrate the Black Death. So why are we having a new 50p to celebrate Brexit?