Business leaders had much to say about prime minister Theresa May’s decision to hold a snap general election. After all, David Cameron legislated for a five-year, fixed-term parliament – the next election should have been in 2020. So we took a closer look at what that meant for business in our May 2017 economic statistics roundup.
May avoided the Fixed-term Parliaments Act by challenging the House of Commons for an early election. It created a lot of uncertainty from the get-go, triggering concerns that May’s mandate would increase the chances of a hard Brexit.
But according to Jonathan Loynes, chief economist at Capital Economics, the latter conjecture is not clear cut. “For a start, May (originally a ‘remainer’, don’t forget) has sounded fairly conciliatory on some aspects of Brexit such as immigration in the early exchanges with the EU.
“And if the election does trigger Jeremy Corbyn’s replacement as Labour leader, that might lead to more effective domestic opposition to the government’s Brexit vision. These points might help to explain why the initial falls in the pound have already been more than reversed.
“All-in-all, another interesting twist to the Brexit story, but there is nothing in all of this to alter our view that the economy will continue to hold up rather better than is generally expected.”
Indeed, the UK economy is going strong, with employment hitting a record high and an export boom boosting growth in the manufacturing sector. But with any uncertain event, Brits are being warned that the coming months could prove difficult, leading to the manifestos of the political parties being scrutinised.
In our May 2017 economic statistics piece, we looked to Oxford Economics for an in-depth analysis – it put their manifestos to the test using an “economic model”.
The more “expansionary fiscal plans” of Labour and the Liberal Democrats would boost both demand and supply, Oxford Economics maintained.
“Policies from the Labour and Liberal Democrat parties are much more expansionary than those of the Conservatives,” Oxford Economics’ Andrew Goodwin explained to the Telegraph. “Their less restrictive fiscal rules allow higher spending, while both parties plan a substantial increase in infrastructure investment. This policy mix would result in faster GDP growth than under the Conservatives – but debt would potentially still remain high.
“The Conservatives plan to pursue a similar set of policies and fiscal rules to those implemented in the 2015-17 parliament. This continuation of austerity is likely to generate stable – if not particularly strong – GDP growth, while keeping interest rates low and gradually reducing government borrowing.
The May 2017 economic statistics piece also found Corbyn’s renationalisation programme to be a heap of uncertainty, with it still being unclear how the ONS will classify the asset purchases. Of this, Goodwin said: “If it adds to public sector net debt, Labour will find it very difficult to comply with its rule on debt. But if it does not add to net debt, it would achieve its rule (as would the other two parties).”
One of the biggest changes as of yet is the value of the pound. Recently analysed by Tim Wallace in the Telegraph, it was suggested the election announcement pushed the pound up “by around one per cent against the dollar and the euro, breaking sterling out of the low band in which it had been trading since October 2016.”
Those most benefitting from the situation, he said, were of course exporters, who gained an additional 15 per cent of proceeds when sales were translated to pound.
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