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After big Tory win, what awaits UK economy?
LONDON, Dec 14, 2019 (BSS/AFP) – The election triumph by Prime Minister
Boris Johnson’s Conservatives will likely bring on Brexit and a stimulus
kick-start for the British economy after years of punishing austerity.
“In terms of the economy and going forward, business after business wanted
an end to the uncertainty” surrounding Brexit, British finance minister Sajid
Javid told Sky News on Friday.
“Already, because of the election result… there are investors that have
decided to deploy money, invest money, in the UK.”
Chancellor of the Exchequer Javid insisted there “will be a deal dividend
because of this election”.
Below is an outline on what to expect following Thursday’s vote that
resulted in the Tories winning an 80-seat majority in Britain’s parliament.
– Growing economy –
Given the clear scale of the Conservative majority, Britain’s exit from
the European Union may finally be pushed through by the end of January.
Johnson says that will free up the new government to concentrate on trying
to grow the stalled economy.
Britain’s economy avoided recession in the third quarter but there are
increasing signs of slowing activity heading into the New Year, according to
the latest data.
Gross domestic product rebounded by 0.3 percent in the July-September
period after a 0.2-percent contraction in the second quarter, and growth
stalled in October as manufacturing and construction slumped.
The Bank of England has upgraded its UK growth forecast to 1.4 percent in
2019, but downgraded 2020 guidance to 1.2 percent.
“It’s a victory for relative stability on Brexit and the British economy,”
Jasper Lawler, head of research at London Capital Group, said in a research
note.
The Tories have overseen a decade of austerity while in government
following the global financial crisis, but Johnson has promised to pump
billions of pounds into public services.
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However at the same time, the Conservatives have said they do not plan to
raise the three main taxes — income tax, sales tax and national insurance
contributions for state benefits — questioning the party’s commitment to
fiscal responsibility.
The outlook for Britain’s economy will be determined also by external
factors according to experts, especially the China-US trade dispute amid a
global slowdown.
One issue of keen interest to foreign investors, who have ploughed into
the British property market, is a Conservative vow to make foreign
individuals and companies pay more tax on residential purchases.
– Sterling, stocks –
The scale of the Tory majority pushed the pound to a 18-month dollar peak
and to highs against the euro not seen since the June 2016 Brexit referendum.
The London stock market’s FTSE 100 index dipped initially at Friday’s
opening, hurt by the rallying pound’s impact on major exporting companies,
but was soon up again.
However, experts warned that the hard part is only just beginning in the
Brexit talks with the EU, despite Johnson’s insistence that a new trade deal
can be agreed before a transition period ends in December 2020.
“Going forward, sterling should remain relatively well-supported, with
focus likely remaining on the Brexit process rather than the economic
fundamentals,” said Michael Brown, senior analyst at foreign exchange group
Caxton.
Sterling is seen as a better indicator of Britain’s economic health than
the London stock market’s FTSE 100 index, which is loaded with multinationals
earning in dollars.
The broader FTSE 250 index, which is more weighted with domestic
companies, surged to a record high on Friday.
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