Figures confirm economy doing well, no recession

Yesterday saw the ONS publish the output figures for the second quarter, which they revised upwards to growth of 0.6% for the three months, 2.2% higher than the previous year. This is right in line with the Treasury March forecast before they slashed it as part of Project Fear.

More importantly we also got their first version of the July service sector output figures, the first full month after the vote. This was the month where the gloom mongers said we would see a sharp shock into recession as confidence was undermined by the UK decision. Instead the service sector grew by 0.4% on the month, and by a lively 2.9% over the year from July 2015. As services are 80% of total GDP, this augurs well for general growth in the economy.

I am sticking with the Treasury March forecast of 2.2% growth for 2016 as a whole, and see no reason to revise that forecast downwards. I note that many of the official forecasters and the Investment banks are busily revising up their stupidly low for casts for 2016, made as part of their belief that there would be a large confidence effect from a Brexit decision. It is difficult to get to a short term post Brexit recession from those July figures. August may not have seen similarly fast growth, but it did not tip us into recession from 2.9% annual growth a month earlier!

There were also surveys yesterday showing growing confidence in business as well as amongst consumers. I am always less inclined to trust surveys, given how misleading the surveys taken a few days after the vote were. What seems to be happening is those answering the questions seem to be wanting to get their answers more into line with the reality on the ground, after letting off steam and anger about the vote in its immediate aftermath.

The previous Chancellor did take actions in March against Buy to let, against purchase of dearer houses, and against insurance policies which are still having some negative impact. The Chancellor has recently announced he sees no need for the special help with borrowing to buy a second hand home, and will be withdrawing parts of the Help to Buy scheme. There’s a sign of confidence for you.

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There are no such things as hard and soft Brexit

The new Remain media line is to draw an absurd distinction between hard and soft Brexit.

We were asked to vote to remain or leave. We voted to leave the EU. The Vote Leave campaign made clear that meant taking back control of our laws, our borders and our money. Polling after the event shows starkly that Leave voters understood that and mainly voted to take back control. It also shows that very few Remain voters (about 10% of total voters) bought into the idea of European Union and wanted further integration along continental lines. ( Michael Ashcroft post vote polls)

The PM has already rightly ruled out the Norwegian and Swiss options, and ruled out staying in the EEA. We leave what the EU regards as the single market as this is fully integrated with the EU as a whole and includes freedom of movement and financial contributions to the budgets.

The main issue we need to sort out with the rest of the EU is access to the single market. All non EU member states have access to the single market. The rest of the EU has to make a simple choice. Do they want to retain tariff free access to the UK market or not? If not, then their access and our access will be under MFN WTO rules, which allows an average tariff of 3.5%. That leaves us 6.5% more competitive, and them 13.5% less competitive after the devaluation of the pound against the Euro.

They will of course want to stay tariff free. If the EU institutional vindictive policy did win out despite the commonsense of most member states and the interests of business on the continent, then the UK will enjoy tariff free trade on things we are good at like aerospace and services, whilst French agriculture will face quite high tariffs and German cars a 10% tariff.

None of this need take a long time to settle, nor does it require a complex negotiation. It is a simple choice. Carry on tariff free as at present, or revert to the WTO ready made schedules.

There is no soft or hard Brexit. We do not negotiate taking back control – that is a contradiction in terms. Nor do I expect us to lose trade over this, as I do not think our EU partners are both vindictive and stupid.

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I will be speaking at four meetings at Conference on Monday 3rd October.

12.45 Great or gloomy? – The UK economy in the next five years” (Bright Blue) Executive Room 1 Level 5 International Convention Centre Birmingham (conference pass needed)

4.15pm Britain after Brexit Embracing Openness not isolation (Taxpayers Alliance) Think Tent Level 3 ICC (at front of Convention Centre) (conference pass needed)

6.00pm Devolution and the Union Where next? (Conservative Home) Library of Birmingham, Room 101 (no pass needed)

6.45pm How to leave the EU Next steps for Brexit (Politeia) Novotel 70 Broad Street B1 2HT (no pass needed)

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Foreign take over bids

Mrs May spoke about the need to make it more difficult for certain foreign investors to take control of UK companies in her economic speech prior to becoming PM. She wants to design a new industrial strategy, which would need to incorporate her latest thinking on this topic as part of it.

I approach this issue from a largely liberal position. If people in the UK own shares in a business and want to sell them to foreigners, I generally have no problem with that. It would be wrong usually for a government to intervene and tell owners they cannot sell their assets. it would put other investors off venturing here, for fear of not being able to sell when they wish to move on.

If the shares being sold represent substantial investments in UK infrastructure and real estate, perhaps as the facilities for a manufacturing or service business, the foreign owner cannot parcel up the road or railway line or office building and take it abroad. They remain important UK assets which the new owner has to operate or sell on to someone else to operate. In that sense UK investments are not at risk from a change of owner.

The legitimate fears that people have are threefold. The first is what if the foreign owner buys up UK factories in order to close them, to reduce world capacity and make his factories and products elsewhere more valuable? The second is what if the buyer is a foreign state or nationalised industry which is buying strategic assets in the UK to gain power over our economy and to increase its leverage at times of tension? The third concern is about intellectual property. What if the purchase is to take crucial technology or other information that could be harmful to us to share?

Our current policy allows normal competition rules to be suspended over defence technology. We can buy from ourselves, and can restrict access to defence companies as part of a national security override. As the ubiquitous digital technology spreads more widely so we may need to broaden our definition of what is a defence interest.

The first worry of future closures to concentrate world output elsewhere can partly be tackled through current anti monopoly provisions. When a large company seeks to take over another in the UK it has to demonstrate that this does not lead to an anti competitive concentration. Maybe stronger or enforceable requirements need to be placed on businesses about maintaining capacity in the UK if it is an option for the buyer to promise to keep our factories whilst intending at a later date to close them. Where someone wishes to acquire a central infrastructure asset, like the Stock Exchange, the answer should usually be No. It will be too easy in the future for foreign owners of the Exchange to switch business from London to Frankfurt.

The second needs new policy. It is wrong if a foreign state or nationalised industry can buy our businesses in a given sector but we cannot buy theirs owing to their public ownership structure. There should be a ban on foreign state purchases where we cannot have similar access to their market, unless the UK authorities think it is in the UK interest to allow it.

The third area also requires some broadening of the areas where the competition authorities can halt or add conditions to an acquisition.

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Is Mr Corbyn throwing away his main advantage?

I thought the whole point about Jeremy Corbyn was his different stance to the Blairites and Brownites. They compromised socialism and tried to trim and alter their views as they tacked to the media’s winds. His second convincing victory seemed to give him the platform to try a new approach, to stick to principles and to offer something very different to the disaster that Mr Brown created by cosying up to the Bank of England and the commercial banks.

I always thought Mr Corbyn was principled and different to establishment Labour on three big issues. The first was his lifelong opposition to the UK having a nuclear deterrent. In his first year as Labour leader it looked as if he was fighting to make that the position of the party he leads, or at the very least to preserve a strong body of anti nuclear opinion by offering a free vote. With his re election just a few hours old, he now decides to sweep aside the principles of a lifetime and to accept that his party does support the renewal of Trident. It appears that a combination of Union and Blairite MP pressure has forced a re think.

The second area of difference was membership of the EU. As a backbencher he seemed to see the EU as a corporate lobbyists plot, with the EU unelected government working closely with big business, leading to social and economic consequences he hates. He is no natural supporter of Euro austerity policies. He seemed happier with the idea that we should leave, or avoid ever closer entanglement. Yet in the referendum he was forced or persuaded to offer lukewarm support for staying in. He went round saying he was fighting to keep EU labour protections. This was bizarre as all parties involved agreed we should keep them, whether in or out. Now we see him moving even more in the direction of wanting to impede the very Brexit he said we needed to implement. It seems he does want to lead his party away from the Leave camp, despite the fact that very large numbers of Labour voters in the cities of England voted to leave and are alienated from their party by its unthinking support for all things that come from the EU Commission.

The third area of disagreement in the past has been over UK military intervention in the Middle East. It looks as if here, too, he is watering down his opposition. There is no pledge to campaign to stop the UK raids over Syria and Iraq, no passionate speeches about the outcomes of interventions in Libya, Syria, Iraq and Afghanistan.

It looks as if he is exhausted by his victory, and moving towards the Brown and Blair supporting MPs who have been trying to get rid of him. If he compromises too much with them he will surely lose that very socialist stardust that his many Labour supporters admire. I had thought Mr Owen Smith would be better from the Conservative point of view, but a Mr Corbyn shorn of his principles will struggle for support.

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Poor investment research

The run up to the referendum was characterised by some very sloppy investment research, often put out by large US corporations who wanted to side with Remain. Instead of wisely staying neutral and seeking to put out balanced well informed commentary some of them put out scare stories to buttress Project Fear. Few of them seemed to read the Consolidated Treaties, or bother to understand the intellectual and research underpinnings of the Leave campaign. Most of them put out forecasts that had plenty of bad cases for Leave but no good cases. Some of them have had to eat their forecasts already, as they anticipated a sharp fall in shares, output and much else immediately following a Leave vote.

Since the vote there have been huge short positions taken out against the pound sterling, as certain market participants have decided that looked like the easiest bet to place that would allow a negative view of the UK’s future. Whichever institutions have done it they remain short and are desperate to try and talk the pound down further. They soon gave up on shorting bonds, as bond prices shot up contrary to some of the original expectations. Nor could they long sustain their bear positions on UK equities. With the Bank of England they gave up on talking the FTSE100 down, but tried for a bit longer to resist the upwards momentum of the FTSE 250. Anyone who followed the investment views of Remain would have missed out on a sharp rally in UK asset prices since June 24th’s mark down. Now we hear from unnamed sources that the damage is delayed, that a “hard” Brexit would be bad news, that maybe some businesses will leave the UK. Doubtless some of these briefers were briefing something similar in the run up the Euro, when we were told London would lose out badly if we did not join.

One US bank after the vote put out a piece of badly researched commentary attacking what they said were my views. They clearly had not read much of what I have written and published on Brexit, and did not bother to ring me to check their allegations. They claimed I did not want the UK to send an Article 50 letter, failing to observe that I did and had published a draft letter to send! They also thought I would be happy to lose passport access to the single market, ignoring the extensive comments I have made on how and why I think we can keep the present passports or the equivalent.

I have written to them asking them to correct their material as I thought they would wish to observe professional standards and would wish to reflect properly the views of anyone they were commenting on. Their failure to do so so far leads me to write this piece. I think it is bizarre that a well resourced investment bank cannot be bothered to check the facts at best,but thinks its clients and the wider public need an incorrect appraisal of my views.

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Better roads

I am contacting the Treasury and the roads Ministers following the Chancellor’s indication that he wants to see more smaller capital projects to improve our transport systems as part of a package to lift productivity and improve the prospects of the economy.

There are four main areas where fairly rapid schemes could make a big difference.

1. Removing more vehicles from parking on the highway restricting inadequate roadspace and causing blindspots for drivers and pedestrians coming out from behind cars. We need more car parks off highway to replace lost on road places and to increase the number of easily available spaces, to cut down on traffic travelling around an area in search of a parking place. More main roads can be made clearways or have double yellow restrictions as we supply more offstreet parking.

2. Improving the safety and capacity of junctions. Rephase lights to give more priority to main roads, with traffic sensors for sidestreet entry. Put in more turn right lanes to segregate traffic. Replace more light sets with roundabouts which often flow better. Abolish all red sequences for traffic.

3. Provide more bridges over railway lines and rivers, as crossing tracks and rivers is often the main cause of bottlenecks into and out of many of our cities and towns.

4. Provide more bypasses for villages and town afflicted by too much traffic on mixed use streets passing through the centres of settlements.

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Congratulations to Jeremy Corbyn

Jeremy Corbyn yesterday swept to victory again in the Labour leadership election. He strengthened his hold on his party and made the rebel MPs look both foolish and factious. UK democracy needs a strong opposition to challenge government when it is wrong and to unify in the national interest when that is right. Given the small Conservative overall majority the Leader of the Opposition and how he flexes his three line whip can matter.

I wrote just once about the substance of the campaign, as it always looked like a one horse race. I concluded “Mr Owen Smith…would drive Leave voters who used to vote Labour in their droves to Eurosceptic parties who do accept the verdict of the British people (in the referendum)..,.. That is why he is my favourite for Labour leader. I don’t expect my dream to come true”.

It was a bizarre campaign from Mr Owen. He tried to pose as the unity and future victory candidate, yet he challenged an incumbent leader who had very recently won a huge mandate from the party and who had enjoyed unprecedented success in enrolling many new members during his first year in office. He adopted many of Mr Corbyn’s left wing policies, recognising their popularity with the Labour membership, yet allied them to his toxic views on Europe and party unity. He has done more to cement the party’s drive in the very direction his followers fear.

Mr Corbyn’s task is a big one. Can he reunite Leave voters in the Labour heartlands with his party? Does he have a policy on borders, migration and access to public services that can attract enough electors to stand a chance in 2020? Can he get enough of his wayward MPs to work with him, to fill the posts of Shadow government and to do the detailed work Bill by Bill, SI by SI that proper opposition entails?

Mr Corbyn should not be underestimated. He has shown a unique ability to lead and mirror the mood in the modern Labour party, and he has tapped into wider worries amongst left of centre voters. He is able to mobilise and motivate socialist voters in ways which eluded previous Labour leaders. He may just want to run a widely based radical left movement with a Parliamentary arm. He still has a long way to go to bring together an effective Opposition and make it look like a credible alternative government. Meanwhile the membership base of the Labour party is testimony to his strength as the recruiter of a political movement.

It remains to be seen whether Mr Corbyn is wise enough and strong enough to reconnect with all those Leave voters in the Northern cities, or whether just as in Scotland Labour is about to discover it can lose more of its old heartlands. With Mr Owen they had no chance.

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The Syrian war

Why has the west failed to resolve the Syrian crisis? I am no apologist or supporter of the Russian actions, but it is clear today that Russia has placed herself in a much stronger position than the USA to influence and shape events in that worn torn and distressed country.
The main reason is the West’s indecision about who to support and who to oppose in this complex, long and devastating civil war. First the West was inclined to side with the forces against Assad, seeing the end of his regime as being a step to a better Syria. Then, with the emergence of ISIL, the West decided ISIL was even worse than Assad, and switched its attention to trying to defeat ISIL. This is difficult to do without committing ground forces, and without having strong local ground forces in alliance. As the West certainly did not want to side with Assad, the main opponent of ISIL on the ground, it made it complicated to intervene. Russia decided early on to side with Assad as the lesser of the evils, and to accept or live with the brutal methods that Assad was using to try to quell the revolts in his country.
Western policy tried to support and create a third force in the maelstrom, a force of so called moderates or democrats who would be able to see off ISIL on the one hand, and to deal with Assad on the other. Given the extreme methods of ISIL and the large forces of Assad using the armed services of the Syrian state, this was always going to be unlikely. It is difficult to recruit and train enough united genuine moderates who will show common purpose and military ability against such dreadful forces set against them on both sides. In a Sunni/Shia civil war there is no obvious third way. In ISIL controlled Syria ISIL is the main enemy, and in government controlled Syria Assad is the main enemy. All too often weapons sent in to help moderates fell into the wrong hands. All too often the so called moderate forces disappointed in one way or another. The Kurds, with one of the biggest contributions to the third force have their own agenda of self government and territorial division, and are opposed by Turkey, a NATO ally of the West.
The West under President Obama in the dying days of his administration is trying to broker a peace. Diplomacy is important. In the end if the various combatants cannot force a complete victory and realise they cannot, they have to talk. They need to give politics a chance. The problem is with Russian support and with the US and NATO effectively out of the military activities, Assad probably thinks he can win or can make considerably more progress against his various enemies. He does not seem to mind destroying the physical buildings and facilities of his homeland or killing many people who ought to be his citizens.
Like many people who look at Syria from afar and grieve over the pictures and reports, I have no obvious answer. Many of us in the west would like there to be answer we could influence or deliver, but it is difficult to see one. Those who say the West should be prepared to use more force to balance things up have to answer how would more bombs and more deaths help? How could the west defeat both ISIL and Assad, whilst leaving a country and people who could then pick themselves up and create peaceful government? To those of us who say give diplomacy and persuasion more of a chance, it is a fair riposte that it seems even now the warring sides are still not yet ready to try to find a political solution.
Sometimes the best the West can do is to do no more harm.

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The state of the Union

Mr Juncker’s State of the Union address this year was downbeat and worried. He said the Union needs a vision. He offered to supply one drawn up by the Commission. It will only be available next spring. The urgency of his words about the need to pull the union together does not seem matched by the laid back timetable for the basic words. Surely the Union needs a vision now?

Mr Juncker’s speech combined the very general and wide ranging, with the specific and detailed. In his general remarks he complained that there was now a yawning gap between what many voters and member state governments want, and what the EU is serving up. He condemned populist politics, as if the voters expressing a view different to that of the Commission is some crime or ill considered liberty. The Commission still does not get democracy, or prefers administration of the elite by the elite for the elite of big government and big business.

In a way I am glad he did not go on about Brexit, yet a speech on the future of the EU without any substantive comment on the departure of one of its largest members over the issue of too much EU power seems curious. Nor did he sketch out how with the departure of the one major country that always had grave reservations about creating a political union with military capability it might enable the remaining states to make more rapid progress towards their goal.

He did reflect on how his role as President of the EU differs from that of the President of the United States, without pausing to mention the obvious difference that one is elected and has a popular mandate and the other is not. He seems rueful that the EU still does not mirror the powers of the federal government in the USA, yet is aware of the strong forces seeking to divide the 27 members of the present Union.

The extraordinary thing about the speech was the absence of any proposed ways of sending more money from rich to poor, of beefing up spending programmes to foster public sector led growth, or fixing the banks more quickly to foster private sector led increases in employment and output. Nor did he have a way forward over the vexed questions of the borders and migration.

The speech seemed to be delivered into a vacuum. The voters of EU states cannot engage, and the national Parliamentarians cannot engage. The rules of the European parliament seem to conspire against holding Mr Juncker properly and daily to account. Organising a procedure which lets a President’s speech go out unchallenged, may just create a sense that the President’s speech does not matter. It is the endless noise and criticism of Prime Ministers and Finance Ministers in lively democracies that amplifies their message, acts as a check on their actions, and forces them to have answers to main criticisms. Mr Juncker’s speech in contrast seemed to pass most people by.

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  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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