#AllOutEconomics Brexit & the UK economy’s rocky path as the Chancellor declares he has ended Austerity.

Vicky Pryce is interviewed by CBR Policy Associate Boni Sones OBE

This interview was recorded on 6 September 2019.

Vicky Pryce begins her #AllOutEconomics podcast by asking why the voice of business leaders is still not being heard by government as the UK economy slows and confidence ebbs away.

“In terms of Brexit we have had long periods when businesses were ignored and frustration grew as a result,” she said.

In a week when Boris’s Johnson’s new government looks to have been boxed in by its own Proroguing of Parliament and the oppositions parties joining with 21 Tory rebels, subsequently expelled from the Conservative Party, to pass a Bill preventing a no-deal exit from the EU at the end of October 2019 the political tensions over #Brexit have become more unpredictable than ever.   Commentators are asking if Johnson himself will have to resign having committed to “do or die” Brexit next month.

The business headlines reflect those Brexit tensions. “Caution dominates the UK Housing Market”. “Will Brexit hit Britain’s fresh vegetable supplies?” “UK firms less prepared for no-deal”.  “UK factory output falls at fastest for seven years”,

“Business would prefer to have a deal of some sort, there is no doubt. No-deal wasn’t a high probability for quite some time, but it became a possibility in the months before the March 29 deadline due to the political deadlock and despite the vote in parliament and the legislation forcing Boris Johnson to drop a no-deal and to seek an extension in early September, the prospect does not seem to have gone away completely. Boris Johnson has said he has no intention of asking for an extension. The prospect of a general election at some stage, before or after October 31, should this be the outcome of the current impasse, will muddy the waters even further. If Boris Johnson won an election he could ignore the Extension legislation or the EU might not grant an extension. So for businesses the uncertainty remains. It is not as if we are over the problems that they have been facing for some time.

“Significant stockpiling and extra production which was the feature of the first quarter of 2019 proved very expensive for many and there is a reluctance/inability now the stocks are being run down to start stock building again, except for the big firms with large pockets. In any case we hear that warehouses are already full. But the destocking has had a negative impact on the economy with contraction in the second quarter. As business and consumer confidence suffer the second quarter could well see stagnation if not outright contraction. Manufacturing and construction data show a fall in the summer months and service growth is stalling. It is difficult in these circumstances to see any real recovery in business investment and productivity. It is for that reason that the Chancellor in his spending review announcement on September 4 promised some £14b extra funds for 2020-21, the fastest increase in spending for 15 years. The only department with a three-year spending commitment is education – the rest will have to wait to hear their fate for 2021/22 and 2023/24. But by the end of next financial year this extra spending will have only reversed two thirds of the cuts since 2010 leaving  many services still struggling from the long term lack of sufficient funding for crucial areas like social care,” she says.

Pryce continues: ‘Markets clearly do not like no-deal and this has been seen in pressure on sterling which only eased slightly when the vote in parliament was won by those opposing a no-deal. But the decline in recent weeks means that consumers have become instantly poorer and input costs for businesses are rising. Nevertheless, the Bank of England, while warning of the impact on the economy of a no- deal is also preparing to ease its monetary stance to assist growth. Sajid Javid, the Chancellor has made it clear that the Treasury will be working closely with the Bank of England and he himself will also will be reviewing the already loosened fiscal rules of his predecessor – which we all interpret as changing the rules to allow for more borrowing which will certainly be needed if the economy stagnates or contracts under a no-deal scenario. But frankly under any Brexit deal, given the damage done so far, it would take a lot to restore businesses trust in the economy and in our politicians”.

Pryce thinks ultimately the UK Treasury will need to borrow more:  “If you’re thinking about the hit to the economy we have already had 3 per cent lower growth than we would have done. We had contraction in GDP last quarter and the World is slowing down anyway both Germany and the USA too and quite a lot of monetary authorities are talking about bringing down interest rates, so we are not alone but we seem to have added to these the self-inflicted wounds of Brexit. We might as well get used to the fact that we are going to have to borrow a lot more and under any Brexit scenario.”

Listen to the podcast

Vicky Pryce begins her #AllOutEconomics podcast by asking why the voice of business leaders is still not being heard by government as the UK economy slows and confidence ebbs away.

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