Home » Britain » Theresa May’s secret weapon – the UK economy

Theresa May’s secret weapon – the UK economy

by John Brian Shannon | November 29, 2016

Some things are expected, and some things sure aren’t. And one of the things that wasn’t expected even by the most vociferous Brexiteers prior to the June 23 referendum, was the strength of the UK economy.

Gross domestic product (GDP) in current prices of the United Kingdom (UK) from 2010 to 2020 (in billion U.S. dollars)

Britain’s GDP from 2010 to 2020. To view the interactive chart, visit Statista.com

In the run-up to the referendum, Bremainers used the fear of an economic crash in the UK to good effect, lowering support for Brexit from a high of almost 70% down to 52% in the final two weeks of the campaign.

Even so, Britons ‘knowing’ in their hearts there would be high economic costs to exit the EU (because famous Op/Ed journalists told them so) they still voted for more democracy, more sovereignty, and more control over immigration

The latest OECD report, informs us that GDP growth in the UK next year will be a healthy 2% — beating major Western and developing nation economies, and the following year is estimated to be in the 1.5% range. Not bad, considering the doom that was supposed to be upon us and considering that the OECD itself had earlier predicted UK growth to be at 1.5% and 1.2% (at best) over the same two-year period.

Sure, some things need to be carefully navigated. Raising the minimum wage for UK workers over age 25 (called The National Living Wage) could be an additional cost for some employers and could thereby increase the unemployment rate among workers. But it’s an overstatement to say that could happen in a growing economy however, if the economy begins to contract it becomes incrementally more serious.

Something else that bears watching is the fall in the value of the pound — which is seen as a desirable thing by economists as it increases exports in almost every country where currency devaluation has ever occurred — but if it doesn’t happen, a speedy remedy must be found. A falling currency with no appreciable increase in exports has no value at all, and only serves to make foreign goods and foreign travel for Britons, more expensive. Government intervention must therefore be instant and right on target in order to rectify the problem.

The UK economy is largely service based (due to the historical high valuation of the British pound) and with a falling pound manufacturing exports should rise in tandem with the falling currency (with plenty of lag time, as it isn’t an instant process) yet if it carries on for too many months, government must intervene to help exporters.

Help is not ‘help’ unless it is actually help.

Providing the right kind of assistance to British manufacturers is key here. There’s no use having the international trade office providing help to access foreign markets if transportation bottlenecks are the problem! Likewise, if limited access to rare-earth metals is the thing restricting manufacturers, lowering the corporate tax rate won’t help.

It’s about listening carefully to the needs of exporters

It’s about meeting every manufacturing CEO and giving them a full and fair hearing in regards to their corporate needs. And then, solving the problems surrounding their inability to export in huge volumes.

It’s doubtful that a one-size-fits-all solution is going to work in Britain’s case. It’s likely that a range of issues need to be addressed. Certainly, companies have a different challenges. For example, some have never exported railway steel (due to the historically high pound) while others that export designer clothing (the high pound just isn’t a factor in this particular market) but face competition from nations which allow ‘knock-offs’ of Britain’s famous clothing brands.

In previous decades, governments threw money at corporations or give them massive tax breaks to allow them to take care of the problems, themselves. But those days are past.

In our time, governments simply don’t have multi-billions to hand to industry as the massive economic growth that was a consequence of massive population increases (courtesy of the baby-boom generation) are long past — and massive corporate tax breaks just aren’t possible as the present corporate tax rates can only be termed ‘marginal’ compared to the ‘heavy’ corporate tax rates of the 1950’s – 1990’s.

All of this means that the British government must begin to see UK companies as ‘part of the solution’ to Britain’s economic future as opposed to ‘part of the problem’ — which is how the corporate world was viewed by government in the pre-2000 era.

High growth is a wonderful thing for senior executives, it’s a great thing for a sitting government, but it means the people in the bottom-three quintiles face ever-lower wages, more unemployment, resulting in a lowered standard of living for those citizens. And let’s not forget, lower standards of living directly and always equate to higher healthcare costs so there’s no savings anyway. At least, not for governments or families.

While the days of fixing everything with one silver bullet are over, there is still plenty the UK government can do to boost GDP; By assisting manufacturers to re-learn how to export and find new markets, helping industry to boost productivity by redirecting education towards the always changing needs of industry, by providing additional R&D tax breaks for companies — and to provide decent jobs for those left behind via massive and ongoing infrastructure spending programmes, rather than have them rely on eternal government support.

It’s clear that Building a Better Britain begins and ends with Building a Better Economy

Therefore, as important as every other matter before government is (including Brexit!) it’s all for naught if the economy begins to fail, because when the economy fails, so does industry, society, and governments, which tend to fall… hard. Just ask any former politician.

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14 Comments

  1. Tim Walker says:

    Looking at a number of different web sites, I have to wonder if the British could export more by going online. Came across references to “SME”-small to middling sized companies-Which may be reluctant to make the leap to international trade.

    I’m thinking in terms of both retail, and export of services. And for a small business, that is where the Anglosphere comes in

    • Hi Tim,

      I think it’s a serious lapse for any company to ignore securing a space on the internet, even if it’s simply to inform potential clients about their location, contact information, and the types of services they provide.

      In regards to exporters, any company CEO that hasn’t already set up a website for location, general information, and sales and marketing purposes, isn’t allowing his/her company to compete on a level playing field with the companies that are already in the 21st-century.

      Best regards, JBS

  2. Tim Walker says:

    Not sure where to put this….

    Book, first printing Oct. 2016.

    The Great Disruption: Competing and Surviving in the Second Wave of the Industrial Revolution – By Rick Smith with Mitch Free.

    We are in the early stages of a second Industrial Revolution-3D printing is a game changer.

    • Hi Tim,

      I’m going to be adding a ‘Forum’ page to this blog in late February. It might make it easier to get comments on a wider range of Brexit-related topics, quite unrelated to the few posts that I’ve published here.

      I don’t want to restrict conversation on these fascinating and wide-ranging points, I want to promote it!

      I’m hoping that people will come to the website to visit the Forum to drop an idea, or to share a link they were impressed with, and then visit my latest blog post.

      Regarding 3D-printing: I think it’s going to be as big as the introduction of the Model T, assembly-line manufacturing, and ‘just-in-time-delivery’ — all put together.

      Countries and companies need to gear up for that now, not 10-years from now — they’ll be left behind if they wait that long.

      I’ve seen an entire house constructed via 3D-printing in China, and it was completed, ready to move into, within 24 hours.

      All of our recyclable plastic, metals, wood and paper, and other materials, can be utilized in 3D-printing / manufacturing. I believe that a barrel of pelletized, recycled materials will become more valuable than a barrel of oil. Much more valuable.

      As for all of the plastic in the seas (entire floating islands of it, in the Pacific Ocean) all of that plastic is free for the taking.

      Whoever manages to extract it, pelletize it, and ship it to a 3D-printing facility, will earn more per barrel profit than oil producers earn — no matter the crude oil price at the time — as exploration, drilling and pipeline costs are so high.

      As always, best regards, JBS

  3. Tim Walker says:

    Dizzybint posted to City Data a list of countries that have shown interest in a trade deal with Britain:

    Australia, Argentina, Bolivia, Brazil, Canada, Chile, China, Colombia, Ecuador, Germany, Ghana, Iceland, India, Ireland, Japan, Kenya, South Korea, Mexico, New Zealand, Pakistan, Paraguay, Peru, Suriname, Switzerland, the United States, Uruguay and Venezuela.

    • Hi Tim,

      That is an excellent list!

      Let’s hope that trade deals continue to rank highly in Theresa May’s government.

      Cheers! JBS

    • Tim Walker says:

      Global trade is increasingly divided into trade blocs. The UK, on the other hand, may not end up in a coherent bloc, but rather end up with a trade network composed of diverse countries.

      • Hi Tim,

        Imagine a pure trading bloc, with a naval security component that includes the following countries:

        Norway, the UK, Ireland, Iceland, Greenland, Canada, and possibly the U.S. (although under Trump, new trade agreements might be hard to come by) simply looking at a map of the North Atlantic shows how important those countries are, in totality.

        Yes, Eire and Iceland are still part of the EU, for now. But that may not always be so… not that I’d want to give them a push, but if they left, so much the better for the UK and so much the better for a North Atlantic trade bloc among the countries I named.

        An interesting idea, for now.

        Cheers, JBS

  4. Tim Walker says:

    A couple online articles to check out:

    “Revealed: How Britain can wipe out trade cost of leaving EU and be better off in one move”

    and

    “Think About the U.K. in Nafta. Really.”

  5. Tim Walker says:

    I agree that Trump could save face by proposing British membership, rather than pushing for abolition of NAFTA. And avoid creating a big mess.

    There have been comments in a number of web sites that the UK will have a very weak hand during UK/EU negotiations.

    In general, what the British need is a strong BATNA (Best Alternative To a Negotiated Agreement). That is, can the British do well if there is no agreement? May’s BATNA seems to be a hard Brexit.

    Without a strong BATNA, the British will appear weak/needy.

    On the other hand, NAFTA membership would give the British access to a market comparable in size and wealth to the EU. If it appears that the UK will definitely sign up with NAFTA in only a couple years, the Brits will have a very good BATNA.

    • Hi Tim,

      Thanks for the great and logical comment.

      Yes, I wholeheartedly agree. If the EU is intransigent, the UK can greatly strengthen their position by instantly and at the first opportunity, joining NAFTA.

      That would neatly counter any ill-will coming from the EU side — and show that the UK can prosper without being tied to the EU’s apron-strings.

      Only 10% (or 12%, depending upon whose numbers you believe) of the UK’s GDP is dependent on the EU.

      Yes, it represents billions of pounds sterling to the UK economy.

      Which is simply a different way of saying; ‘If the UK loses all rights to trade with the EU, UK GDP will fall by 10% and probably cause a recession.’

      Not like that is going to happen, as EU businesses are even more dependent upon the UK, than Britian’s businesses are on the EU. (Mercedes, BMW, Volkswagen, Airbus, etc)

      I think the EU could survive without Vauxhall or BP, if you take my meaning.

      That’s why a failed post-Brexit trade agreement between the UK and the EU will hurt the EU more than it will hurt Britain.

      Certain EU politicians need to get over their hurt feelings, and do what’s best for their economy — a smooth trading relationship with the United Kingdom.

      Otherwise, they will be cutting off their nose to spite their face.

      Always great to hear from you! JBS

  6. Tim Walker says:

    Came across an online article, dated March 15, 2017: “As TTP falters, New Zealand Keen For Pacific Alliance Trade Deal”. The founders of the Pacific Alliance-Peru, Colombia, Mexico, and Chile-have indicated that they are ready to negotiate trade deals with outside parties. There is to be an “associate” status.

    The Pacific Alliance was the outfit that Martin Hutchinson was so enthusiastic about.

    • Hi Tim,

      Yes, I did skim that article when it first appeared.

      I think it’s only natural that PacRim countries join together in some sort of low-entry barrier and low-tariff regime (a trade bloc) to grow their trade within and without the Pacific region.

      Such a trade agreement would move much needed capital to developing economies along with part-ownership of the thereby rapidly growing companies that rise due to ready access to capital.

      I’d love to be an investor in Indonesian, Chilean, Peruvian, Mexican, and other PacRim economies.

      With only one or two security caveats, it’d be a license to print money.

      Best regards, JBS

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