UK economy’s mixed signals hard to read for new PM Johnson

LONDON (Reuters) – Rarely has Britain’s economic outlook been so unclear for a new prime minister as it is for Boris Johnson, with strengths such as the lowest unemployment in 44 years contrasting with signs in business surveys of a slowdown or even a recession.

FILE PHOTO: Prime Minister Boris Johnson holds his first Cabinet meeting at Downing Street in London, Britain, July 25, 2019 Aaron Chown/Pool via REUTERS

More than three years into the Brexit crisis, Britain’s economy probably slowed to a standstill in the April-June period and might even have contracted for the first time since 2012, economists say.

At least part of the weakness can be attributed to a hangover from a stockpiling boom in the run-up to the original Brexit date of March 29, when companies brought forward work to get ready for possible disruption.

But there are other suggestions of more underlying problems.

Below are some important gauges of the health of the world’s fifth-biggest economy.

BUSINESS INVESTMENT

Business investment has flat-lined since the Conservative Party won the 2015 general election with a pledge to hold a referendum on membership of the European Union. That ended a rise which began after the financial crisis of 2008/09.

The malaise looks likely to continue as companies assess the risk that Britain leaves the EU on Oct. 31 without a deal, something Johnson has said he is prepared to do if he cannot strike a new agreement with the bloc.

JOBS

On the face of it, the labour market is the strongest part of Britain’s economy. The unemployment rate is the lowest since the three months to January 1975 and pay is rising at the fastest rate in a decade.

But there are also signs of weakness emerging. Employment growth slowed sharply in the three months to May and self-employment accounted for all the jobs added. The number of employees fell by the largest amount since 2011.

ECONOMIC GROWTH

Official data showed strong growth of 0.5% in the first quarter from the last three months of 2018, fuelled by the stockpiling boom.

The hangover from that rush and earlier-than-usual closures of auto plants in April, also linked to the March 29 Brexit deadline, mean gross domestic product probably showed zero growth or shrank in the second quarter.

Official GDP data is due on Aug. 9 but business surveys published recently have painted a picture of an economy struggling for momentum.

The closely watched IHS Markit/CIPS survey of the services sector is deep into territory associated in the past with interest rate cuts by the Bank of England.

GOVERNMENT FINANCES

The new finance minister is under less immediate pressure to fix the public finances than his most recent predecessors but he will have only limited resources to boost government spending or cut taxes, as promised by Johnson in his leadership campaign.

Britain’s headline measure of total government debt stands at more than 1.6 trillion pounds ($2.0 trillion), equivalent to 75% of economic output, down only slightly from historic peacetime highs of more than 80% a few years ago.

Britain’s budget deficit has shrunk to just over 1% of GDP in the last financial year from nearly 10% a decade ago, but official budget forecasters predicted in March that it will rise again this year.

That forecast did not take into account the higher spending and tax cuts pledged by Johnson during his campaign, nor the hit to the public finances that would follow a no-deal Brexit.

HOUSING MARKET

The housing market slowed after the 2016 Brexit vote, especially in London where house prices fell at the fastest rate since the financial crisis in the 12 months to May, according to official data.

But there are signs that the worst of the slowdown may have passed.

The Royal Institution of Chartered Surveyors says the housing market showed tentative signs of recovery in June as interest among buyers rose for the first time since just after the Brexit referendum, and sales also staged a rare increase.

Graphics by Andy Bruce; Editing by Peter Graff | The Thomson Reuters

Another source nationalreviewdotcom

Britain’s new prime minister may be headed toward an early general election whether he likes it or not.

In his victory speech, the newly elected Tory leader and British prime minister, Boris Johnson, reiterated his campaign slogan: deliver Brexit, unite the country, defeat Jeremy Corbyn. That spells “dud” — ho ho — so Johnson added an extra “e” for good measure.

“DUDE!” he said. “We are going to ENERGIZE the country!”

Great, dude! But, as always, how?

One can forgive Johnson’s optimistic outburst. He had just beaten his rival Jeremy Hunt two-to-one. With 66 percent of the vote share, Johnson secured the largest majority by any leader of a political party since 2005. And prime minister has been Johnson’s dream role since childhood.

However, winning the Tory-party leadership contest was the easy part.

Johnson has inherited an almost fatally precarious parliamentary majority. Out of 639 voting MPs, the government needs 320 to secure a majority. There are currently 312 conservatives, plus ten MPs from the Northern Irish Democratic Unionist Party (DUP) who are lending their support. In other words, the government has a working majority of just two MPs. One of whom has just been suspended from the party pending an investigation into sexual misconduct.

Being reliant on the DUP for support comes with problems of its own. The Irish backstop — an ostensibly temporary customs union and non-negotiable condition of the EU’s withdrawal agreement with Theresa May — is loathed by the DUP, largely owing to the effect it would have on the integrity of the union. The DUP is, rightly, fearful that under this arrangement, Northern Ireland would be treated under a separate regulatory system from the rest of the U.K.

However, both the EU and the Republic of Ireland insist that the backstop is essential in order to prevent a return to a hard border in Ireland. The Irish question was one of the main deadlocks that Theresa May found herself in when trying to secure a deal. And just as it was for May, it will be impossible for Johnson to please everyone.

So, given the fragility of the numbers, whose approval should he prioritize? And what happens if he loses his majority? Answering these questions requires going back to basics. As always, there are only two kinds of Brexit.

1. A deal.

This would need to be negotiated between the British government and the EU and gain Parliament’s approval. Which is back to square one with the numbers problem.

In other words, Johnson is now tasked with achieving in 100 days what Theresa May was unable to achieve in three years. An added pressure is that Johnson has promised that Britain will leave the EU by the next deadline — October 31 — “do or die.” Which doesn’t leave much wiggle room.

Will he be able to get a better deal than May? And if he can’t do much better, will he be a better parliamentary salesman? Michel Barnier, the EU’s chief negotiator, promptly extended an invitation to talk with Johnson after his victory. Time will tell.

2. No deal.

Simply put, no deal means leaving without the EU’s say-so. But no deal without the backing of Parliament is another thing entirely. Yesterday MPs voted to block the government from proroguing Parliament in order to force through a no-deal Brexit.

The Remainer Tory ministers of the “rebel alliance,” including the former chancellor of exchequer and justice secretary, have indicated that they are willing to vote to bring down the government if that is what is required to avoid a no-deal Brexit. Johnson has since had private meetings with this cabal in an attempt to dissuade them. But that’s unlikely to be enough. The Times of London reports that “pro-European backbenchers believe as many as 20 Tory MPs could vote to bring down Mr Johnson’s government if he attempts to force Britain to leave the European Union without a deal.”

All of these problems would suggest that’s what’s needed — if not inevitable — is what both critics and supporters of Johnson have been advocating for some time: a general election. Of course, with the competition of the Brexit party and the revived Liberal Democrats, this could seriously backfire for a Johnson government. Yet some think it is in his best interests to call one sooner rather than later. If it’s going to happen, better for him to lead the way.

In terms of delivering Brexit, uniting the country, and defeating Corbyn, the Johnson premiership is marked as high risk and high reward.

another source ftdotcom

Boris Johnson: Key dates for the new UK prime minister

What happens between now and the October 31 Brexit deadline

Boris Johnson has won the Conservative leadership contest and will become the UK’s prime minister on Wednesday when Theresa May formally stands down. Here are some of the most important dates and challenges Mr Johnson will face once he assumes power.

JULY 24. Mr Johnson takes office

Following her final prime minister’s questions, Mrs May will complete her long goodbye from Downing Street. But before she visits Buckingham Palace to hand in her resignation to the Queen, she will receive a raft of resignations, with chancellor Philip Hammond and justice secretary David Gauke among a group of pro-EU ministers vowing to quit rather than serve in a Johnson administration. Once Mrs May has left the Palace, Mr Johnson will be asked by the Queen to form a new government. He will then return to Downing Street to announce who will be given the plum cabinet roles of chancellor, home secretary and foreign secretary.

JULY 25. Last day of parliament

While Mr Johnson finalises his cabinet, MPs opposed to his “do or die” pledge to take the UK out of the EU by the current scheduled departure date of October 31 with or without a deal, will have one day to act before parliament packs up for the summer holidays. In theory, Jeremy Corbyn, leader of the opposition, could launch a motion of no confidence against the new prime minister. But with the Labour party still divided over Brexit, MPs opposed to a no-deal Brexit may wait to see if Mr Johnson softens his position before launching a bid to stop the UK from crashing out of Europe without a deal when parliament returns in the autumn.

AUGUST 1. Brecon and Radnorshire by-election

With a working majority of just two, Mr Johnson inherits a government with a precarious electoral mandate. On August 1 that majority could be further reduced if the Tories lose the by-election in the Welsh constituency of Brecon & Radnorshire. In a bid to unseat the Conservatives, pro-EU parties such as the Greens and Plaid Cymru have agreed to stand aside and back the Liberal Democrats, who look headed to victory according to polling by Number Cruncher Politics, and are expected to beat the incumbent Chris Davies. Mr Davies is standing again despite voters signing a recall petition after he pleaded guilty to submitting fake expenses documents.

AUGUST 24 G7. leaders meet

After taking office Mr Johnson is expected to embark on a tour of European capitals — crucially travelling to Paris, Berlin and Dublin — for talks with fellow leaders. Meanwhile, EU Brexit negotiators are on standby throughout August should Britain’s new prime minister want to talk. But the crunch could come during a meeting of G7 leaders in Biarritz in south western France. By then French president Emmanuel Macron and German chancellor Angela Merkel may have a better sense of whether Mr Johnson intends to follow through with the pledge he made during the leadership contest to leave the EU on October 31, “do or die”. The two-day summit will also offer the new prime minister a chance to meet US president Donald Trump, who has backed Mr Johnson to solve Brexit.

SEPTEMBER 3. New parliamentary session

Parliament returns for the start of what promises to be one of the Commons’ most momentous sessions for years. If Mr Johnson’s initial negotiations with EU leaders have hit a brick wall, then MPs opposed to a no-deal Brexit will have to move quickly to find ways of blocking the prime minister if he is intent on crashing out of the bloc on October 31. Last week, pro-EU MPs voted to block any future moves by Mr Johnson to suspend parliament in October.

SEPTEMBER 29. Conservative party conference

With just a month until the UK’s scheduled exit from the EU, Mr Johnson can expect a rapturous reception when he addresses the party faithful at the Tory conference in Manchester. His predecessor, Mrs May, set the course for her premiership at her first party conference speech as prime minister in 2016 when she in effect pledged to pursue a hard-Brexit policy, setting the red lines on the European Court of Justice and immigration, which made finding a deal with Brussels so difficult. The new prime minister could find that the mood has soured if he appears to be going soft on Brexit. Hardliners such as Jacob Rees-Mogg, and grass roots supporters who backed Mr Johnson over Jeremy Hunt, will expect to see him follow through with his pledge to take the UK out of the EU without a deal if he has been unable to win significant concessions from Brussels.

OCTOBER 17-18. EU summit

The last scheduled gathering of the bloc’s leaders before Britain’s scheduled departure date on October 31 looks set to be hijacked by Brexit. If Mr Johnson has been unable to find a breakthrough with Brussels, and if parliament has found a mechanism for stopping a no-deal departure, then the new prime minister may be forced to request an extension to the current Halloween deadline. But while EU leaders do not want to be the midwives of a no-deal Brexit, they have repeatedly said they will not grant an extension unless it is for a good reason, such as a general election or a second referendum.

OCTOBER 31. Brexit deadline day

The EU agreed in April to extend the Article 50 process until October 31. At the time the EU Council president Donald Tusk pleaded with Britain’s political leaders not to “waste this time”. But the intervening months have been taken up with the Conservative party’s lengthy campaign to elect a new leader — and UK prime minister — leaving relatively little time to reopen negotiations with the EU or to secure the support of parliament for a reworked withdrawal deal. With the EU set to start a new five year political cycle and new leaders including European Commission president Ursula von der Leyen set to take office in November, the deadline is not arbitrary. Brussels is desperate to move on from Brexit, ratcheting up the likelihood of October 31 becoming no-deal Brexit day.

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