Bill Jamieson Better news we need to hear more of

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BILLJAMIESON | Executive Editor of The Scotsman

Better news we need to hear more of

Finding reasons for optimism in the midst of Brexit turmoil.

Reading through the media coverage of the UK’s economic performance, it would be hard to avoid the impression that we are going steadily downhill. Are we not doomed to sluggish growth?Is not business being choked by Brexit uncertainty and buckling under the higher costs flowing from the fall in the pound?

This bleak outlook plays into the hands of anti-Brexit ‘Remainers’ urging a ‘soft’ Brexit – and preferably, one suspects, a halt to the whole Brexit business altogether.

When it comes to the eurozone, militant Brexiteers can often seem little better. Are not the economies in the single currency area in long term decline, struggling under shedloads of Brussels regulation with barely a pulse to be felt?

In truth, there are reasons to be more cheerful on both counts than these partisan positions allow. Take the EU. It is certainly not in our interests to have a weak partner: it remains the market for just over 40 per cent of our exports and will continue to be so whether we sign a free trade agreement with the EU or not.

The eurozone in particular may not be showing a tiger-economy super strength, but it is doing better than many critics admit. It is currently enjoying a better performance than we have become accustomed to. In the April–June quarter the economies in the single currency area have enjoyed on average the fastest pace in more than two years.

Preliminary estimates put GDP growth at a seasonally-adjusted 0.6 per cent over the previous quarter, up a fraction from a better than forecast performance in the opening three months. The Netherlands was the outstanding performer. Growth also gathered pace in Spain where the economy has finally returned close to pre-crisis levels.France and Italy has maintained growth, while Germany remained robust – and with signs pointing to a sustained performance for the rest of the year.

Confidence indicators across the eurozone continue to hover at all-time or multiyear highs and independent analysts are forecasting GDP growth of two per cent this year, thanks to a firmer labour market, rising investment and healthy external demand.

The uK outlook

And how fares the UK? Certainly a lot better than former chancellor George Osborne’s scary prediction that “as many as 820,000 jobs could be lost” as a direct consequence of the vote to Leave, and the Treasury analysis that Britain would be worse off by £4300 a year per household by 2030 in the

event of a Brexit vote. Unemployment has fallen to 4.4 per cent, the lowest for more than 40 years. Numbers in work have risen 0.7 per cent over the past year to more than 32 million or 75.1 per cent of the working age population. And GDP has continued to grow, albeit modestly, but defying Osborne’s predictions of a fall.

Business activity is strengthening based on the Brexit devaluation’s switching of demand away from consumption to net exports and investment – trends confirmed by CBI and Bank of England agent surveys as well as by the Purchasing Managers Indices.

What of UK trade and the balance of payments? Goods export volume, excluding oil and erratics, was up 6.2 per cent on a year earlier in the April–June quarter. The equivalent import volume, in spite of strong consumption growth over that period, was up only 4.5 per cent. There has also been an improvement of £2.4 billion per quarter in the balance of trade in services. This is showing clear progress in Britain’s external accounts.

Much is made of the threat of EU tariffs on UK manufactured goods in the event of a ‘no deal’ Brexit result. But as economist Professor Patrick Minford points out, these EU tariffs are low on average – around 3.5 per cent. Vexing these may be, but capable of absorption, particularly in the wake of the 13 per cent fall in sterling.

What he finds puzzling is why EU exporters are not putting more pressure on the Brussels negotiators to sign a trade deal with the UK. The UK will be able to sign free trade deals with many other countries, which will send us goods at much lower prices than the current EU-protected ones. “EU exporters,” he points out, “ will not just face the same low tariffs which we will no doubt proceed to levy on them if there is no deal; they will also face much tougher competition which will force them to lower their prices sharply.

“Why are these exporters not putting pressure on the EU to sign a trade deal with us that might defer this pressure or even stop it completely in some sectors where current EU protection could be prolonged by agreement?” The Brexit process, he despairs, “continues to be an extraordinary episode in which the common-sense economics of free trade and competition is repeatedly denied by producer interests and their allies.”

There’s certainly cause for despair when we look – but more cause for hope than much media commentary allows. n

Confidence indicators across the eurozone continue to hover at all-time or multiyear highs and independent analysts are forecasting GDP growth of two per cent this year.