The papers are saying we should expect lower growth in 2017 than 2016. Is that reasonable? Here's a few reasons why that might well be the case.
A year ago we hadn't done Brexit
A year ago we had just had a general election, had not done Brexit, were negotiating new flexibility with the EU and the Democrats were going to control Washington. There was a mood of vague optimism. Of course 2016 turned out OK, ish. It takes time for shocks to hit. But they did, and they too have their impact.
Brexit is having an impact
There is no doubt about this: banks are already drifting away. Nissan is not so sure it's staying after all. Mayhem is reigning in Whitehall. Uncertainty is going to last for some time. Like it or not that will dampen the animal spirits that drive the economy, even if in the end it all turns out well. Investment will be down in the meantime.
Trump's in town
And he's talking tariff wars, a reduction in US military spending overseas, tax wars and a real shift away from areas where investment is really required, like green technology. He also hates foreign cars and we sell the US quite a lot of cars. All of this has real and serious spillover effects for the UK. Trump is not good news for the UK economy. Demand for our goods and services will be down.
Interest rates will increase
There are good reasons for this. First, the US will be increasing rates. Trump's policies demand it. Yellen thinks it's needed anyway. And there are signs we will too. The pound may well need support. We have a credit boom. We need to keep money flowing into London. Real increases are on the cards, and they're going to be uncomfortable for a lot of over-geared households and businesses.
House prices aren't going as fast as they did
Tax changes have started this process. So too will rate rises. And the UK rises and and falls on the basis of house prices, which are slowing down.
Inflation is coming back
This is a simple function of a falling pound: inflation will follow and there's no guarantee that wages will, especially in the public sector. So people will have less to spend on more expensive goods. That's not good for growth.
We're still suffering austerity
Just in case you've forgotten, the government is still trying to do the opposite of what is needed when the economy is under-performing and facing systemic risks and is trying to cut its spending. That's the last thing we'll need, but it's what we'll get.
Something will break
There are signs of stress all over the place. Whether it's the NHS, social care, other government systems at their limit before Brexit begins, or an overheated FTSE that has a habit of correcting quite radically when the time to do so comes, or consumer debt that could go bad, there are ample signs of things that could break in the UK economy right now and trigger a major lack of confidence. I will be candid and say I have no idea what will break: no one is clairvoyant, but break it may well do.
The government is clueless
Around the world there is a crisis of confidence in government. That's why we have Trump. That's why we have Brexit. But dealing with the UK alone, sometime in 2017 a lot of people are going to realise that the government cannot deliver an easy of smooth Brexit, let alone one without considerable cost. That is not apparent to most people as yet. As the realisation that they have been sold a bad idea grows so will disillusionment with government, and that will hit spending hard as people pile on the savings.
Europe may be in trouble
It takes on of the elections in the Netherlands, France and Germany to go far right for a crisis to develop. Two and we're in trouble. I don't think it's Germany. But the other two? Maybe. And if so the eurozone is in real difficulty. This may not happen, but our biggest trading partner is hamstrung until we know and that's still many months off.
We're not investing
The UK is not investing in what it needs: May's new plan will not address that. The best way out of recession is not being used.
Wages are too low
People are under-employed and underpaid in the UK. The result is we simply don't have enough to spend to rebalance the economy.
The UK won't tackle the tax gap
The UK government says there is £35 billion of unpaid UK tax. I say it's maybe three times that. And we're sacking tax inspectors, still. As a result the level playing field that is required to build the confidence for small business to invest, most especially in skills, does not exist. Instead tax cheating prospers. We shoot ourselves in the foot by perpetuating this policy. And it is a choice. But it's one that's not being changed soon. That costs us growth.
Tax havens continue
We won;t tackle tax abuse overseas either. The impact is the same: we lose out on growth because of reduced investment because cheating pays better. It's economic madness not to beat this abuse, but we won't.
In summary
2017 is not looking good.
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Agree with all of this except one thing: I do not agree that the Government is ‘clueless’.
Cameron was certainly stupid that is for sure for creating this mess and any Government would find the situation that they are in now very difficult.
This Government has a plan and it is trying to execute it. It is a cunning plan and one that will benefit themselves before anything.
I think that calling them clueless makes them seem less of a threat.
This could well be an error.
Since so many of the Tories are ex business and financial people, they think chaos is good because they know (like the vultures know – even though we know that these birds behave as they do for a beneficial reason) that chaos and destruction can bring rich pickings for people like them – opportunities to get ahead. Chaos is natural to the Tories – it is how they make their fortunes these days. But unlike vultures what the Tories do only benefits them and their kind.
Everything they do is by design in my view. The Tories are dangerous not clueless.
You may be right
I am not wholly convinced
“And we’re sacking tax inspectors”
No we’re not.
http://www.thetimes.co.uk/edition/money/watch-out-here-comes-the-taxman-kh5jhrq0v
The plan is to cut by at least 5,000 and maybe more
It was held up because they sacked too many and got into a mess
But the plan is still intact
Read source documents
I think PSR makes a valid point. It’s never been a smart idea to underestimate the Tories for self-preservation. It requires an innate skill to keep resurrecting themselves from the dead – like zombies. In fact ‘zombie’ is a pretty good description of most of their policies, especially economic. In contrast, since Attlee, the Labour Party seems to do almost anything it can to make it unelectable, even though its piolicies are generally quite liked by the electorate at large. Is it a form of political masochism? It took a 3rd Way, Neo-liberal, Tory-lite to get them into power – a price they are now paying. (At the time euphoria replaced the preceding generational gloom, but ‘Blairism’ is not unlike peeing in your pants; it feels pleasantly warm for a while but later becomes increasingly uncomfortably cold!).
I digress. You, Richard, also make valid points. What we now have is the lethal cocktail of an INCOMPETENT Tory government, likely to stay in control for at least another 8 years, during which time they could accomplish much of what PSR states. It’s a real challenge not to become clinically depressed. There is no simple remedy for ‘Weltschmerz’. The advice I give to anyone who has the resources is to leave the UK. Otherwise it’s placing one’s hope in ‘events’ which is akin to a Cargo Cult.
So many of the policies you advocate are logical and admirable and yet … you “expect lower growth in 2017” as if it is a bad thing. This week, Ladybird is publishing a peer reviewed book called ‘Climate Change’ by Prince Charles, Tony Juniper and polar scientist, Emily Shuckburgh. The world’s carbon dioxide emissions, the major source of the problem, are now 60% higher than when the IPCC was established about 25 years ago. The North Pole will be ice-free in summer before long. Look at the trend: http://psc.apl.uw.edu/research/projects/arctic-sea-ice-volume-anomaly/
Once the ice has gone, the white surface which has been bouncing some of the sun’s heat back into space will be replaced by dark sea which absorbs heat more readily. The dangers abound — yet you want growth when according to climate scientists we need emissions cuts of around 10% per year *now*. See, for example, Andrew Simms writing in the Guardian: ‘A cat in hell’s chance’ — why we’re losing the battle to keep global warming below 2C. A global rise in temperature of just 2C would be enough to threaten life as we know it. But leading climate scientists think even this universally agreed target will be missed. Could dramatic action help? 19 January 2017 https://www.theguardian.com/environment/2017/jan/19/cat-in-hells-chance-why-losing-battle-keep-global-warming-2c-climate-change
What about advocating some ‘dramatic action’ that would reduce the threat to ‘life as we know it’? Emissions created by the wealthiest 10% (reader: that probably includes you as well as me) need to be cut to the current European average for a start. The ‘average European’ survives.
I know Tony Juniper
I do regret lower growth
But my aim is for the type of growth I describe in my book The Courageous State where I reconcile the term with environmental constraints with which I am very familiar
Growth is not per se bad
The abuse of redirects to achieve it is
This image for the ice trend is clearer:
http://psc.apl.uw.edu/wordpress/wp-content/uploads/schweiger/ice_volume/BPIOMASIceVolumeAprSepCurrent.png