One of the most revealing sets of data this week has been the balance of payments data for the UK. Most people are well aware that after the Brexit vote the pound fell significantly and that it is still around 18% lower than it was before that vote. Not to worry, we have been told, this will be good for British trade. Our products will be cheaper so more people will buy them and our imports will be more expensive so fewer of them will be bought. The country will be better equipped to stand on its own two feet when it becomes proudly independent as the fifth largest economy in the world. Our glorious manufacturing sector will return and with it our old prosperity.
I have been arguing for some time that one of the first results of Brexit was actually to make us the 6th largest economy as they measure the size of economies in dollars and so when the pound went down against the dollar so did the relative size of our economy. Now it emerges that even a drastic decline in the pound hasn't actually been enough to improve the balance of payments. Before the referendum result the UK had a balance of payments deficit of £7 billion per quarter. After the post referendum drop in the pound that deficit went up not down. The gap moved up to over £13 billion and trade in goods was £8 billion worse than before.
Clearly it is never a good idea to read too much into one set of data. But equally clearly the country has a balance of payments problem that has gone on for years and it has just got even worse despite the pound going down. The most likely explanation for this isn't a nice one. If you live in a global economy where most things simply can't be made in any one country then it doesn't help all that much if your currency goes down. People still buy most of their things from abroad - it is just that it now costs more in foreign exchange to buy those products because your own currency is worth less. This means your import bill actually goes up rather than down when your currency declines. Ask anyone who has bought petrol recently.
When it comes to selling more abroad the problem is the other way around. If what you sell are things for which there is a fairly static demand then you don't sell a whole lot more of them when your currency declines but you do get a lot less foreign currency for them. A declining pound isn't an automatic quick fix. It can simply make it harder to balance the trade books.
There are signs that some manufacturing employers are doing better than they would otherwise have done because of the low pound. But manufacturing's decline relative to the service sector is continuing. There are a lot more signs that the price of what is being purchased by supermarkets is going up and consumers are about to find their bills going up at a time when very few employers are handing out nice pay rises. And anyone booking next year's holiday will quickly notice the difference in cost. The pound in your pocket has been devalued and it hasn't helped either industry or the consumer.
Anyone looking at the intractable long term struggle the UK has had to sell enough goods and services in order to buy the ones it wants would come to one simple conclusion. Now is the time to look after your markets. It is a well known truism that it is a lot easier to lose existing business than it is to win new customers. 40% of the UK export market goes to the EU.
Anyone focusing on the actual economic needs of the country should therefore be moving heaven and earth to make sure that the UK keeps access to the single market in any exit deal from the EU. Theresa May knows that and, if we believe what she was saying only six months ago, it was the single biggest reason why she personally campaigned to stay in the EU despite being congenitally uncomfortable with its provisions for job security and personal rights. So why has she chosen to ignore facts that she is well aware of?
There is only one possible answer. Cheap political calculation. She is scared to tell voters how important access to the EU market is. She prefers to repeat the brave assurances of the far right that we don't need those pesky European markets because we can somehow set up a whole series of new trade deals and win a whole series of new customers. Inside two years. Or she chooses to repeat the brave assurances of the far right that the EU will give in and provide us with access to the free market on any terms we want because they are desperate for access to a market of only 60 million people. What she won't do at any price is honestly tell voters that with an ageing population and an NHS under pressure we desperately need immigration of young healthy tax-paying people to look after the demographic time bomb.
She also won't, at any price, willingly volunteer to subject her EU policies to rigorous analysis by MPs before she starts to negotiate away our rights to sell freely onto the biggest local market along with our rights at work. Not because she fears the searing strength of any attack on this that Labour might make. But because she fears the strength of the attack that will come from half of her own MPs led by Anna Soubry, Nicky Morgan, George Osborne, and Ken Clarke.
We are being led into a major economic disaster by someone who knows the score and isn't willing to explain it. Some may regard this as strong decisive government. I view it as spineless self serving refusal to help the country face up to harsh truths. And that very rarely ends up well. For either the country or for the political leader in question.
I have been arguing for some time that one of the first results of Brexit was actually to make us the 6th largest economy as they measure the size of economies in dollars and so when the pound went down against the dollar so did the relative size of our economy. Now it emerges that even a drastic decline in the pound hasn't actually been enough to improve the balance of payments. Before the referendum result the UK had a balance of payments deficit of £7 billion per quarter. After the post referendum drop in the pound that deficit went up not down. The gap moved up to over £13 billion and trade in goods was £8 billion worse than before.
Clearly it is never a good idea to read too much into one set of data. But equally clearly the country has a balance of payments problem that has gone on for years and it has just got even worse despite the pound going down. The most likely explanation for this isn't a nice one. If you live in a global economy where most things simply can't be made in any one country then it doesn't help all that much if your currency goes down. People still buy most of their things from abroad - it is just that it now costs more in foreign exchange to buy those products because your own currency is worth less. This means your import bill actually goes up rather than down when your currency declines. Ask anyone who has bought petrol recently.
When it comes to selling more abroad the problem is the other way around. If what you sell are things for which there is a fairly static demand then you don't sell a whole lot more of them when your currency declines but you do get a lot less foreign currency for them. A declining pound isn't an automatic quick fix. It can simply make it harder to balance the trade books.
There are signs that some manufacturing employers are doing better than they would otherwise have done because of the low pound. But manufacturing's decline relative to the service sector is continuing. There are a lot more signs that the price of what is being purchased by supermarkets is going up and consumers are about to find their bills going up at a time when very few employers are handing out nice pay rises. And anyone booking next year's holiday will quickly notice the difference in cost. The pound in your pocket has been devalued and it hasn't helped either industry or the consumer.
Anyone looking at the intractable long term struggle the UK has had to sell enough goods and services in order to buy the ones it wants would come to one simple conclusion. Now is the time to look after your markets. It is a well known truism that it is a lot easier to lose existing business than it is to win new customers. 40% of the UK export market goes to the EU.
Anyone focusing on the actual economic needs of the country should therefore be moving heaven and earth to make sure that the UK keeps access to the single market in any exit deal from the EU. Theresa May knows that and, if we believe what she was saying only six months ago, it was the single biggest reason why she personally campaigned to stay in the EU despite being congenitally uncomfortable with its provisions for job security and personal rights. So why has she chosen to ignore facts that she is well aware of?
There is only one possible answer. Cheap political calculation. She is scared to tell voters how important access to the EU market is. She prefers to repeat the brave assurances of the far right that we don't need those pesky European markets because we can somehow set up a whole series of new trade deals and win a whole series of new customers. Inside two years. Or she chooses to repeat the brave assurances of the far right that the EU will give in and provide us with access to the free market on any terms we want because they are desperate for access to a market of only 60 million people. What she won't do at any price is honestly tell voters that with an ageing population and an NHS under pressure we desperately need immigration of young healthy tax-paying people to look after the demographic time bomb.
She also won't, at any price, willingly volunteer to subject her EU policies to rigorous analysis by MPs before she starts to negotiate away our rights to sell freely onto the biggest local market along with our rights at work. Not because she fears the searing strength of any attack on this that Labour might make. But because she fears the strength of the attack that will come from half of her own MPs led by Anna Soubry, Nicky Morgan, George Osborne, and Ken Clarke.
We are being led into a major economic disaster by someone who knows the score and isn't willing to explain it. Some may regard this as strong decisive government. I view it as spineless self serving refusal to help the country face up to harsh truths. And that very rarely ends up well. For either the country or for the political leader in question.
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