I can’t remember ever approaching the New Year’s celebrations with such a depressing backdrop. We have an apparently dysfunctional government that appears to be making heavy weather of the Brexit negotiations and an opposition party enthusiastically promoting Marxist economic policies. Not to mention, scandal after scandal; ranging from personal misconduct to tax avoidance on a grand scale by very wealthy individuals and corporations.
To make matters worse, inflation is rising and wage growth is stagnant. Retailers are hiding their heads under their pillows in anticipation of dismal Christmas and January sales figures after what was a relatively disappointing Black Friday.
Every day there seems to be another depressing news story. The problem is, if you believe the media then it would be easy to believe we are in a perpetual state of crisis. Every day we seem to be encouraged to believe that we are sitting on the edge of the abyss and an unfortunate aspect of human nature is that such negative news is often more appealing than positive stories. Too many of us prefer to be outraged rather than informed.
As we approach the New Year I can’t help but think that we would all benefit from making it our resolution to be more confident about the outlook for 2018. If we were all a little bit more confident about our future, our future would as a proven economic consequence, have a little more lustre. Of course lots of bad things are happening and have happened, but I can’t think of a single point in human history when that wasn’t the case.
Brexit is here to stay and we just have to get on with it. When you leap off a high object the worst thing to think about is whether you should have jumped in the first place. It’s too late for that indulgence and the priority now should be to focus on preparing for a smooth landing. The problem at the moment is everyone is spending too much time wondering if it was the right choice to leave, whereas now we need to put all the effort into landing well and making the best of it.
The reality is more positive than we might think. The UK economy is not booming but it is growing, albeit at a slower rate than other major economies. Leaving the EU was never going to be easy and it was always going to be a process that, in the short to medium term, had a financial cost rather than a financial benefit. I’m not talking about the so called Brexit divorce bill here, because in the scheme of things £40-50 billion payable over 10 years or more is small change. The real cost stems from the uncertainty that will persist until businesses have a better idea of the post-Brexit trading terms for the UK with the EU.
Until that time, many businesses will not be investing what they otherwise might have in new people and infrastructure. My calculations predict that the cumulative impact of Brexit over the next 10 years, in terms of UK GDP, is likely to exceed £800 billion. That represents a great deal of economic activity. However, my calculations also predict that this deficit will be clawed back over the following 10 years. It may surprise you given the amounts quoted, but my assumptions regarding the scale of impact are actually pretty modest. The model highlights that the longer it takes to agree the broad terms of a trade deal, the greater the cost to both UK and EU GDP. So politicians and bureaucrats on both sides need to be pragmatic and get on with it.
The global economic outlook has improved dramatically throughout 2017 and what is particularly encouraging is that all the main contributors to the world economy are benefiting from an upswing in fortunes at the same time. It seems this trend will continue into 2018, which means that the markets where the UK can sell our goods and services are likely to be buoyant. And this represents a unique opportunity for this country’s economy to get a real shot in the arm. Let’s not forget also that a recovering Eurozone economy will be good news for the UK, because the Eurozone will remain our largest trading partner for the foreseeable future.
On the other side of the Atlantic we have a US president who seemingly cannot resist the limelight and can’t help but portray an unflattering persona when illuminated. Nevertheless, not all that is happening across the ‘pond’ is negative. Consumers are buoyant, unemployment is historically low and the economy is stable. Furthermore, the US economy has received news of a significant boost from what will be the biggest tax giveaway for decades. Trump has actually delivered on one of his key election pledges. In the short to medium term, this should be good for the global economy.
The simple fact is that we need to be more positive as a nation and the media need to start reporting on the positive things that are happening around us. You don’t have to look far to see the positive things that have happened in 2017. Consider the unexpected record highs achieved by many stock markets around the world which have provided some superb investor returns; the rise in global trade; resilient UK GDP, UK and US unemployment continuing its downward trend; the improving fiscal position of the UK Government’s finances and a Eurozone economy that is finally rebounding. All in all, things could be a lot worse.
The best way for us to make the UK a better place is for us all is to ignore negativity from the media and focus on the positives. If we are all positive in how we think, we will be more positive in the way we behave and everyone will benefit. The economy is most influenced by us, not politicians. If we spend and save in the correct proportions, everything will turn out OK.
So whilst seeing in the New Year and pondering your resolutions for 2018, take a moment to reflect on the positive things that have happened in 2017 and make confidence your New Year’s resolution!
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