A post-Brexit ‘Boris boom’? Stimulus, the pound beating expectations and a possible EU deal may make it happen
- Britain is an important enough trading partner for the EU to work out a late deal, much as it once did with Greece
- Furthermore, Britain looks like it’s taking the gloves off and getting ready to spend big
When the chips are down, and the outlook is bleak and all seems lost, perhaps it’s the moment to consider the alternatives.
But with new UK Prime Minister Boris Johnson now installed and leading the charge out of the European Union, this might be the occasion to ponder the unthinkable.
Could Britain be at the cusp of a “Boris boom” in the next few years?
This is no paean to Johnson as Britain is a badly broken, divided nation in dire danger of the union splitting up under new independence pressures resurfacing once again.
Political risks are rising, economic confidence is suffering and the nation is crying out for salvation.
The pound might be on the point of collapse, with a test of parity looming against the dollar before long. Something needs to change and quick.
Crises are nothing new to the UK. The 1976 sterling crisis, when the UK went cap in hand to the International Monetary Fund for a financial bailout, typified the needs of an economy then in desperate need of a major overhaul.
Rescue came in the shape of Thatcherism, the brand of neoliberal economic shock therapy applied when the late Conservative prime minister Margaret Thatcher led the country between 1979 and 1990.
After a raft of deep structural reforms, market liberalisation and corporate sector renaissance, Britain sprang back on a tide of economic revival.
Now, three years after the referendum decision to quit the EU, the UK is in trouble again, with a mountain to climb to get the economy out of its current muddle.
The economy could be sliding towards recession, with consumers and businesses on the defensive and unwilling to make new spending and investment commitments with so much uncertainty in the air.
Consensus UK forecasts expect little more than 0.5 per cent annual economic growth in the next few years. Britain could be a slip away from years of deep economic hardship in the worst-case scenario.
Johnson has ambitious plans to make Britain the most successful European economy by 2050, with massive fiscal expansion as the centrepiece for recovery.
A major programme of business-friendly tax cuts, backed up by a barrage of budget-busting spending measures, aims to get the economy moving again.
The list of public spending increases is endless, to sweeten voters ahead of a likely general election. Years of fiscal austerity are about to end.
This is a worry with Britain’s current account deficit already running at 6 per cent of GDP and with a hard Brexit likely to exclude British exporters from free and easy access to their most lucrative market inside the EU.
Of course, Johnson could get lucky and win a better exit deal from Europe at the final hour, while creating new trade opportunities outside the EU.
After all, the EU has too much to lose on no-deal Brexit, currently enjoying a €80-billion (US$80 billion) annual trade surplus with the UK.
It’s in everyone’s interest to compromise and Europe has a reputation for striking last-minute concessions. Remember how Europe backed down during the Greek debt crisis in 2012?
In a contrarian view, too much negative news is already built into sterling, leaving the currency ripe for a major short-squeeze rally.
With the pound close to an all-time low against the US dollar, sterling assets are looking “cheap as chips” on a relative basis. Overseas buyers are already lining up for UK acquisitions at bargain basement prices.
It’s early days, but the UK Brexit story promises plenty of twists and turns and might still defy pessimists’ worst expectations of an impending train wreck.
David Brown is the chief executive of New View Economics