Author: johnredwood

All too many commentators, reporters, market watchers and politicians are seeing everything through Brexit spectacles. The pound went up and down before Brexit, the economy grew and slowed before the vote, the Stock market rose and fell without a referendum. All the forces which moved markets and changed economies before still apply.

It is absurd to argue that sterlig rallied owing to extra uncertainty created by the recent legal judgement. Far more important was the Banks decision to back off from further rate cuts and more QE, real things which have a direct bearing on the value of the currency. It also helped that the Bank now sees that the economy will grow strongly this year, and will do better next year than it thought.

The recent fall in the Stock market has been put down to the possibility of a Trump win in the US election. Its the first time for months that a non Brexit reason has been given for a major change, Lets hope its a sign of better things to come in trying to explain why markets move.

Meanwhile as a few commentators have also noted, money growth continues at a rapid pace in the UK. This points to further strong growth next year, not to the EUro area style lower growth rate the Bank and others are now predicting.

Most days in the Commons since the referendum the issue of Brexit has come up. There have been several government statements. There has been an Opposition day debate. There have been Questions to each of the 3 leading Brexit Ministers. There have been Questions to the PM. On Monday there will be another all day debate when MPs can range widely, expressing their views on how leaving should be handled and what should be in the negotiations. If the Opposition wanted a vote on sending an Article 50 letter they can have one on any Opposition day they like.

The fact that the Opposition have chosen not to hold a vote on Article 50 implies they accept it and realise the government has to send one. We don’t need lawyers to give MPs the right to talk about or vote on anything they like! It’s up to the Opposition to say what they are going to do.

Labour and other political parties hostile to Brexit also claim the government is refusing to set out its high level aims. They all claim to agree that in a negotiation it is not wise to set out in advance what you will give ground on, what your red lines are and the all the rest. Nor does it make any sense to offer any concessions before the proper negotiation begins. Within this constraint the government has been very forthcoming about what it intends to do to implement the wishes of the voters.

Ministers have said

There will be no re run of the referendum. It was fair vote with a good turnout.
There will be no second referendum on the terms. There is no point, because the other side will not suddenly improve them if we vote No
We will leave the EU in accordance with the decision of the UK voters.
We will repeal the 1972 Act
We will transfer into law all EU laws and rules for the time being to ensure legal continuity.
Amendments will be made thereafter where needed, as with fishing and borders.
This government will keep all employment protections currently in EU law by transferring them into UK law
We will re establish the supremacy of UK law and the UK courts
We will re establish the sole right of Parliament to pass laws for the UK, subject to the wishes of the electors in our democracy.
We will have a UK migration policy which meets our needs
We will spend our own tax revenues in ways we see fit
We will seek the best possible access to the EU’s internal market, offering free trade as we currently have
We will assure all legally settled EU citizens here in the UK that they can stay, assuming no evictions of UK people from the continent
The UK will not be a member of the single market as that comes with freedom of movement and budget contributions attached
The UK will not belong to a customs union which prevents us from negotiating our own free trade deals with countries around the world
The UK will explore free trade deals with a range of countries, in order to reach early agreement and signature once we are out of the EU.

I have heard all of this many times in Parliament and elsewhere from the government. Why doesn’t Labour listen? What part of this do they not understand?

We need to reduce uncertainty for business. These set of policy decisions does just that. We now need to move on and do it.

The Remain media were ever willing to report the falling pound, but have gone silent in the last couple of days as the pound has risen against the dollar and Euro. All it needed was the Bank to say it would not cur rates again and not print yet more money, and the pound bounced. If the Bank would restore rates to where they were pre the vote it would rise further. It reached $1.2485 today compared to a low below $1.20.

The court case made for convoluted and anti democratic reading. The vote of the people was only mentioned at the end, and dismissed for no good reason as advisory. Did they not read the Hansards where the PM and other Ministers stressed the people were to decide? Did they not read the leaflets sent by the government to each household with Parliament’s approval and using public money voted by Parliament to pay for them? These leaflets all said we, the people, were making the decision.

Did the Judges not understand that Parliament can anytime if it wishes debate and vote on the Article 50 letter? It has been the choice of the Opposition not to do so.

I hope the government will now table a motion saying

“This House approves the sending of an Article 50 letter in accordance with the wishes of the people as expressed in the referendum, any judgement of the courts notwithstanding”

The government should then send the letter.

I would expect the motion to pass easily, as I cannot believe Labour will impose a 3 line whip to expressly go against the results of the referendum. If they did the government should still win the vote, given Labour rebels, some Northern Ireland MPs and most Conservatives voting for.

I am always cautious about relying on PMI surveys, as they can give misleading readings, as we saw immediately after the EU vote. However, many other forecasters like them and use them. It will be interesting to see if they follow their logic through. Those who revised forecasts down sharply after the vote because the initial PMI figures were weak should presumably be revising them up substantially now they are strong. Today’s Services PMI came out at 54.5 for October compared to 52.6 for September. The overall whole economy PMI hit 54.6, up from 53.8 in September. These figures have to be below 50 to forecast a downturn.

I am sticking with my forecast of 2% growth this year, in line with the Treasury forecast in March. It is also difficult to see why many forecasters are still so pessimistic about 2017.

The Bank of England will doubtless want to put out a gloomy forecast for inflation for next year based on a lower pound.

They need to remember that October showed a further 1.7% fall in shop prices, including a 1.2% fall in food prices. This is from the BRC Index. This 1.7% decline figure is identical to the declines of 1.7% recorded in April and May this year before the vote.

It is true that imports will get a bit dearer from here, but important to remember we start from negative inflation on shop prices.

I trust the Treasury and Bank are revisiting their forecasts for 2017 as we speak.

Yesterday the UK’s largest housebuilder, Persimmon, announced another good set of figures. New home sales were up 19% year on year. They have pre sold their homes for 2016, and are ahead of last yea’s performance in sales for the following year. House prices have stayed up, despite Bank and Treasury forecasts to the contrary. Even better news came with Persimmon telling us they are putting in a new brick factory in Doncaster, and aim to be making bricks there next summer. That is exactly the kind of import saving investment we need, to cater for rising domestic demand. Persimmon also pre fabricate parts of their homes from a Midlands factory to speed site construction and improve precision.

A new potash mine investment is going ahead in Yorkshire with a £2.5bn investment. Output of automotive engines was up 6.7% so far this year at end September. Car manufacturing output is up 10.5% over the last year.

Various retailers have confirmed that sales of luxury brands to visitors to the UK have risen sharply following the decline in sterling. Burberrys, for example, said UK retail sales were up 30% when worldwide sales were pretty flat. Meanwhile retail prices fell again last month in sterling terms, despite the fall in the pound. Overall retail sales have been strong since June 23rd and real incomes have continued to rise.

The Bank’s pessimism centres on fears that major companies will postpone or even cancel investment projects. It is difficult to see why, when money, credit and demand are all growing so well. The Nissan news reflects the need for highly productive investors in the UK to reinforce their success for what is an important growing domestic market. UK manufacturing has just become 15% more competitive, underwriting the success of Uk factories for foreign investors. I want to see the government promote UK purchasing. The government itself is a mighty buyer of products. Once free of the EU controls, you would expect exciting new approaches.

Money and credit are growing faster than before the vote. This implies continuing good growth next year. The average forecaster has now revised up their 2016 forecast to the levels last seen before the vote. isn’t it time they did the same for 2017?

The OBR/Treasury forecast matters because it will inform the Autumn Statement. If they persist with a downbeat and inaccurate estimate for next year they will claim tax revenues are lower than the March forecast and spending higher. It is important markets look through this and understand that in practice things are likely to turn out as forecast in March, with a lower deficit as a result.