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Share prices finally seem to understand that the UK is not a basket case after all.
All it took to push the FTSE 100 index up a few hundred points last week were decent inflation figures and a signal from the Bank of England that interest rates should fall by summer. Anyone reading the right newspapers would have known it anyway – so why the surprise?
There have been many other positive indicators on the economy, including an improvement in the CBI Industrial Trends Survey, strong Purchasing Managers’ Indices, a clear recovery in house prices and more.
But for one reason or another, many did not want to accept that a turning point had actually been reached. Anyone who believed these dark stories will have missed a decent rally.
There is a broader point here. The fact is that the next government, whoever forms it, appears to have a much better legacy than seemed likely a few weeks ago. The forecasts catch up with the better inflation outlook but do not yet reflect the likelihood of faster growth. If this actually happens, many other concerns, including the debt burden, will become much more manageable.
Optimistic: the next government, whoever forms it, appears to have a much better legacy than seemed likely a few weeks ago
The need for growth was the central theme of Rachel Reeves’ Mais in the City talk last week. This is a big deal, one of the key elements on which shadow chancellors can lay out their position – the policies they believe will improve the performance of the economy.
I went to see it, and it was a solid performance: she read the autocue competently and answered questions – including one about the hostile reception her words had received from the Unite union – with grace and spirit.
As for the bottom, well, that was a bit of a kitchen sink. Everything was mixed up. She compared today’s sense of despair about the economy to that of 1979, the year she was born, while unsurprisingly asserting that conservatives had bad solutions to the problems.
But this is absurd to anyone who remembers the chaos of the winter of discontent, or even that surge in inflation. The Consumer Price Index (CPI) soared throughout 1979, peaking at 17.8 percent the following spring. The Bank of England’s interest rate was 12 percent on election day in May and rose to 17 percent in November.
We secured a firm commitment to be fiscally responsible, reiterating Gordon Brown’s rule of borrowing only to invest, and the current government’s target that the national debt should fall as a percentage of GDP by the end of this Parliament .
She clearly stated that growth was the only way to maintain or improve public services, which makes sense. The big idea as to how to achieve this, apart from the usual stuff about more investment, was to shake up planning laws. This also makes sense. If official projections are that the population, currently 68 million, will reach 71 million by 2028, we will need to build a lot more housing.
There was a real concern for the business world: the strengthening of labor legislation. Many business leaders will share the views of Currys boss Alex Baldock. Interestingly, Reeves tried to present these plans as boosting labor mobility: better job protection would encourage workers to change employers. Almost in passing, she said they wouldn’t do anything that would harm our flexible labor market. We will see.
If she does indeed become the next chancellor, we should all be aware that it is what politicians do that matters most, not what they say. Those of us with long enough memories will remember Gordon Brown talking about caution. Then Labor ended up leaving the coalition with a budget deficit of 11 percent of GDP in 2010.
Nonetheless, if it is true that the next government’s legacy turns out not to be too bad, the reset in global opinion towards the UK will be hot and strong. So my rather ambitious end-of-year forecast that in 2024 the Footsie would hit 8,500 and the British pound would touch $1.40 might not seem so far-fetched after all.