May and Hammond's Two Year Window
The problem
At this juncture,
after the fallout from the G20 summit in China, the Chancellor, Phillip Hammond
and his boss Theresa May, could be feeling somewhat overwhelmed in as what to
do with the ‘Brexit problem.’ Japan and China seem to be heaping the pressure
on the UK to start negotiations soon. Which anyone outside the UK would of
course want given the fact no one seems to have a clue what is going on.
In fact, this indecision could be a real issue for Britain. Japan’s foreign ministry is claiming that Japanese firms could leave the UK in search of a new EU nation in which to build their factories. In doing so 140,000 jobs are at risk in the UK. President Obama also seems to be suggesting that ‘stressed that the US would prioritise trade talks with the Asia-Pacific region and the EU.’ Both of which do seem clear risks to the UK economy.
In return, Mrs. May seems to giving rather vague statements out that the ‘UK is open for business’, and it will remain a world leader in terms of trade. But already larger banks are starting to think that London will not be the trade hub it is now, and this could easily move to Frankfurt. Not good considering the city is one of the most lucrative areas in the world in terms of business.
A solution?
That
said, the one thing May and Hammond have in their armory is that Britain has
not yet left the EU. The stock market has recovered from its well documented
fall on June 23rd and retail spending has remained solid. Mark
Carnery’s use of quantative easing has offset any real damage. Whilst there
seem to be about a billion forecasts of what may or may not happen, Britain is
still part of the EU. Which means the PM and chancellor can prepare for when
Britain does eventually leave the EU…
One article in the Economist did seem to give a real suggestion. Focus on the internal economy first and address the external after. By attending to smaller projects such as building infrastructure, reversal of benefit cuts could in turn help those who would feel the backlash of Brexit the most. High subsidies for foreign firms could also mean that these firms do in fact stay within Britain. Use of Keynesian regional policy would win back those voters who felt disenchanted with the current government. Big shiny projects like HS2 will help, but the massive cost in a time of uncertainty may be the main issue.
References
The Economist - The Right Kind of Budget
http://www.economist.com/news/leaders/21706268-do-list-britains-new-chancellor-philip-hammond-right-kind-budget
The Economist - Fact and Fiction
http://www.economist.com/news/britain/21706348-dire-prophecies-doom-have-not-come-trueyet-economy-slowing-fact-and-fiction
BBC
news - Brexit: Japan warns firms may move European HQ out of Britain http://www.bbc.co.uk/news/business-37270372
Guardian - Theresa May to tell G20 UK is ‘open for
business’ despite Brexit vote
BBC - Brexit: EU's
growing impatience over UK's lack of clarity
