Whisper it: the world economy is on the up and UK plc is perfectly placed to make the most of it, writes ALEX BRUMMER
The doomsayers in the business community have lost no time in pouring scorn on Theresa May’s fragile government — disparaging the health of the economy and seizing the opportunity to undermine Brexit, for which the British people voted a year ago.
What is really galling about the gloomy interventions from the likes of the Institute of Directors (IoD) and the CBI is that none of these denizens of free market capitalism were ever heard from during the seven-week election campaign.
Faced with Labour’s plan for the biggest assault on the market economy since World War II — including suffocating taxes on business and entrepreneurship, plus wholesale nationalisation — the business community and City were silent as monks.
Naysayers have wasted no time in criticising Theresa May’s government as weak, and the outlook for the economy as dire while Britain faces a period of uncertainty
The consequences of a Corbyn government for prosperity, jobs and living standards would have been incalculable. Yet the business lobby showed only cowardice in face of the threat.
What a contrast to the noisy participation, on both sides of the debate, during the EU referendum campaign and the 2014 Scottish independence campaign!
Only now does the business lobby seem prepared to speak. A survey of 700 IoD members reveals deep concern about the impact of current political uncertainty on the economy.
The CBI director-general warns that business might cut back on investment, even though it has held up well following the Brexit vote.
A Harvard study orchestrated by two of yesterday’s men, former shadow Chancellor Ed Balls and former Standard Chartered bank boss Peter Sands, concludes that ‘almost all’ small businesses want to keep membership of the Single Market and the Customs Union in the post-Brexit world. (This contrasts with views expressed by the British Chambers of Commerce and other small business organisations keen to shed the red tape that these EU arrangements inflict.)
Against this background, anyone who forecasted a financial market meltdown in the wake of the confusing election result and the Tory infighting since is misguided.
The consequences of a Corbyn government for prosperity, jobs and living standards would have been incalculable
Yes, the pound is lower — but 2 per cent? At $1.27, the drop is a mere bagatelle. Indeed, the pound has been much lower in recent months.
It plunged to a 31-year low of $1.14 last October — albeit temporarily — following speculation on how the bolshie French might sabotage Brexit negotiations.
And what should never be forgotten is a fundamental fact of economics: a weaker pound supports the British economy because it helps exporters.
Despite the political uncertainty that investors obviously dislike, the key FTSE100 stock market index has shown resilience and lost little ground since Thursday.
Why? Because investors are comforted by the knowledge that Britain’s great international companies earn the majority of their profits overseas.
When this money comes back here as foreign currency earnings, it converts into more pounds, higher earnings — and better dividends.
That’s a bonus many firms have been quick to compute, with those which had the foresight to focus on new markets in order to take advantage of the pound’s fall showing spectacular success.
Take Swindon-based Honda: it reports U.S. sales of its five-door Civic are up 40 per cent on the company’s original target, while Groupe Eurotunnel reports that, in May, a record number of freight trucks (141,646) — that’s 3 per cent up on a year earlier — crossed the Channel.
The latest data on Britain’s trade with the rest of the world shouts out loud the fact that exports are on the rise because of the cheaper pound, with the three-month growth in export volumes climbing from 1.6 per cent last October to 3.7 per cent in April.
And a study by the Washington-based International Monetary Fund agrees that flexible exchange rates can, indeed, increase exports, thus challenging those Brexit cynics who argue the opposite.
Overall then, despite the precarious position of the Tory government, the financial markets seem to believe this is preferable to a ‘coalition of chaos’ led by Jeremy Corbyn that would be a recipe for fiscal suicide.
While the pound did take a dive following Friday’s election result, in fact this helps the British economy by boosting exports
On a more positive note, the global economy looks to be in better shape than at any time since the financial crisis.
After years in the doldrums, the Japanese economy is bouncing back, while recovery in the newly rich economies of China and India is under way.
And in the U.S. — Britain’s single biggest trading partner — the stock markets have never been stronger.
In America, an energy boom is under way, thanks to President Trump’s deregulation of the industry.
Paradoxically, Mrs May will get some help, too, from Europe as the UK goes into the negotiations on Brexit scheduled for this month.
For the fact is that the lengthy economic slump in the eurozone, which stretches back to the financial meltdown of 2008, at last shows signs of ending, as the impact of the European Central Bank pumping £58 billion of newly printed money into the euro area each month takes effect.
Even though the jobless rate in the EU remains stubbornly high at 9.5 per cent of the workforce (more than twice the 4.5pc rate in the UK), growth in the first quarter of the year reached 0.6 per cent.
This, allied with the cheaper pound, ought to be beneficial for British firms selling goods, financial and other professional services to the Continent.
So there is no reason why we should feel too downbeat about the prospects for our national prosperity — but the Government needs to play its part, too.
One of the great weaknesses of the Tory election campaign was the grossly misguided failure to project an uplifting vision of what a post-Brexit Britain, open to world markets, will look like.
Such a vision needs to incorporate the best in digital and transport infrastructure, better and more generous support for Britain’s world-class research and technical universities, and a strong recognition of the enormous contribution the City of London makes to all our lives.
Conversely, Labour’s spendthrift proposals were ridiculous, unaffordable and would have risked national bankruptcy. But the party’s surge in the polls demonstrated the significance of presenting a positive view to voters.
In the months ahead, Mrs May and her ministers must articulate the upbeat message they have so far singularly failed to deliver — and reach out to business groups and the City, which feel neglected by her administration.
The whole country needs to be reassured that free markets and stronger exports and trade will deliver economic benefits for every household across the country.