Howard Shore, Founder, Shore Capital Group and Puma Brandenburg
Analysts trying to predict the UK’s economic outlook for 2020 face two huge unknowns: the outcome of the General Election and whether our current Brexit paralysis continues or comes to an end in January.
The economic possibilities resulting from these two unknowns range from the UK being on course to have one of the fastest growing economies in the G7 in 2021, to us having a severe recession.
If, as I expect, the General Election delivers a majority for Boris Johnson, this will produce a huge boost for the UK economy in 2020, because it will provide businesses with clarity and remove the economic uncertainty which has beset us thanks to the double-whammy of a sclerotic hung parliament and the threat of a Jeremy Corbyn-led government.
All the problems and obstacles that the current Government has encountered to getting Brexit done have had a massive dampening effect on investment decisions and have also hit consumer confidence. Consumers are behaving as if we are about to enter a recession because they have been sensing economic uncertainty.
A clear Conservative majority will remove the cloud of uncertainty hanging over the UK economy. With the passage of the Withdrawal Agreement in the New Year, and our departure from the political structures of the EU by 31 January 2020, certainty will be restored and a big economic boost will follow. This will come from a wave of foreign investment, as well as domestic business leaders signing off investment plans which have been put on ice for the past three years, both of which will contribute to a rise in mergers and acquisitions activity.
This boost will be further solidified when the Government negotiates a successful trade agreement with the EU in 2020 and puts in place new trade deals with countries around the world that were previously less accessible from the EU’s Customs Union.
These new trade deals should cover the UK’s world-class service sector, as well as manufacturing. Twentieth century WTO rules are outdated and the UK should make it clear to potential trade partners – particularly the EU – that in return for full access for goods, we expect full access for services, so long as there is regulatory equivalence when providing particular products into that particular market.
Of course, UK manufacturers and services providers should comply with EU regulations when exporting into the EU, but this does not mean that the EU should control the regulations for goods and services consumed in the UK or exported to the rest of the world. Regulatory alignment should only cover exports to the EU. This is the essence of taking back control.
Another economic boost will come from the increase in government spending. The markets trust the Chancellor, Sajid Javid, to look after the nation’s finances carefully and make sure the extra money is spent wisely. As well as additional infrastructure spending to ensure the UK is properly joined up, one would expect further steps to build on our success in the fields of science and technology, as well as other service sectors. This should include investing in human capital and introducing a new visa system to ensure the best and the brightest can study and work here. One would also hope for lighter touch regulation to unleash the full potential of SMEs who employ the majority of the private sector workforce.
Added together, these developments mean that the UK could have the highest economic growth of all the G7 countries in 2021.
Looking at the latest figures in the IMF’s World Economic Outlook database, from October 2019, the UK is already predicted to have higher growth (1.4 per cent) in 2020 than France (1.3 per cent), Germany (1.2 per cent), Italy (0.5 per cent) and Japan (0.5 per cent) in 2020, with only Canada (1.8 per cent) and the US (2.1 per cent) ahead of us.
The Eurozone is clearly struggling, and without the UK’s liberalising influence, the EU is likely to further trend towards higher regulation and protectionism, as well as tax harmonisation. The Japanese economy is also unlikely to return to high levels of growth any time soon. And North America will inevitably be impacted by electoral uncertainty and continued fears about the China-US trade war.
For the reasons outlined above, there is good reason to believe that the UK will exceed the 1.4 per cent growth rate for 2020 predicted by the IMF. With the threat of a Corbyn government assuaged and sensible stewardship of the economy by a newly-elected Conservative government, economic growth should be significantly higher.
Since the 1980s, the UK has been seen as a solid and profitable place to make investments. Basic building blocks such as the rule of law, property rights and (generally) stable politics have made us an attractive place to do business. With the right outcome on Thursday, the UK could rise to the top of the G7 league table. With the wrong decision, it will crash and burn. I’m confident the British public will make the right decision when they go to the polls.
A version of this article first appeared in The Telegraph.