Sunday, February 23, 2020
Sunak gets ready to do a reverse Osborne
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

Nothing is predictable these days, which may be the government’s guiding principle, but for this week I am making two assumptions. The first is that, unlike his predecessor, Rishi Sunak will be around for long enough as chancellor to deliver a budget. The second is that the budget will go ahead, as planned, on March 11, as he suggested a few days ago. I hope I am right.

What can we say about a budget from a chancellor whose rise has been rapid, if not quite without trace, and whose views are not yet well known? We are told that he is a fiscal conservative and, interestingly, was allowed at his first cabinet meeting as chancellor to say that he expected departmental ministers to come up with 5% cuts in their programmes.

This does not mean that we will see such cuts in government spending, and most of this is ground to be covered in the summer spending review. But the Treasury, as under Sajid Javid, is keen to make room for the government’s priorities. Quite a lot of work in the presentation of the budget will go into emphasising that the government has not given up in fiscal responsibility.

The responsibility resting on Sunak’s shoulders is considerable. The first budget of what is effectively a new government is very important, in setting the direction for what it hopes will be the next few years. The first budget of a new chancellor who hopes to be around for some time is also very important for him.

History tells us that first budgets matter a lot. Sir Geoffrey Howe, Margaret Thatcher’s first chancellor, used his in 1979 to cut the basic and higher rates of income tax dramatically, funded by a big increase in VAT. Nigel Lawson in 1984 used his first to establish his reputation as a tax reformer, particularly on corporation tax. Gordon Brown’s first budget in 1997 was preceded by his announcement of Bank of England independence, introduced a windfall tax on the utilities and set in train far-reaching reforms, notably the abolition of the dividend tax credit, which hit pensions hard.

The interesting comparison for Sunak is with George Osborne’s “emergency” budget in June 2010. It announced an increase in VAT from 17.5% to 20%, to take effect at the start of 2011. It also announced the start of the austerity programme, what was described at the time as “taking a chainsaw” to public spending, including deep cuts to capital spending, infrastructure, some of them inherited from Labour. So it began, and so it lasted. Javid’s one-year spending review last September, when he announced £13bn of additional spending for 2020-21, was officially labelled as the end of the austerity Osborne had embarked on all those years before. Sometimes, though, these things are harder to shake off than merely announcing them.

Even so, it is fair to regard Sunak as a reverse Osborne. While his predecessor but two had the clear aim of cutting back the public sector and thus leaving it to the private sector to deliver growth, which after a shaky start it did, the new chancellor will be using public spending, and in particular the £100bn of additional infrastructure spending over five years he has inherited from Javid, to drive the economy. The private sector is expected to be weak, so the public sector will fill the gap.

It is a significant moment. The Resolution Foundation, a think tank, noted last week that the new chancellor is set to announce the first government spending boost to the economy since the financial crisis. It expects the baseline growth forecast from the Office for Budget Responsibility (OBR) to be weak, as was the Bank of England recently.

Sunday, February 16, 2020
When a chancellor quits, we should all be unsettled
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

In the many years I have been doing this job, two chancellors, John Major and Gordon Brown, have left their post to move onto greater things; becoming prime minister Two have lost therole of chancellor as a result of election defeats for the governing party; Kenneth Clarke and Alistair Darling. Three have been sacked, sometimes after being offered demotions; Norman Lamont, George Osborne and Philip Hammond.

Only two, however, have resigned and, curiously enough, both did so over the question of advisers. Nigel Lawson resigned in October 1989 because Margaret Thatcher refused to rein in her economic adviser Sir Alan Walters. Sajid Javid resigned on Thursday, honourably, because Boris Johnson wanted him to get rid of his advisers, the most blatant Downing Street Treasury power grab I can remember.

It would be going too far to say I shall miss Javid, because he had been chancellor for such a short time, and one of the few in history never to have presented a budget, the last being Iain Macleod in 1970, who died before being able to do so. Javid knew the significance of that – a bit like a footballer declaring himself unable to play just before a World Cup final – so his decision to step down was a big one. He came close to presenting a budget in November but was scuppered by the election announcement. He expected March 11 to be his day. He was, additionally, well-liked by Treasury officials.

His signature policy, pursued over many years before he became chancellor, was to take advantage of low bond yields to borrow to invest, which I discussed with him. He will no longer be there to announce the £22bn a year of extra infrastructure spending that he promised, but that policy should be pursued by his successor, Rishi Sunak, who as Treasury chief secretary (the minister in charge of spending) has already been closely involved with it.

So there should be continuity on infrastructure spending but other things may be different. After all, Johnson and his chief adviser Dominic Cummings – who is the opposite of an eminence grise – did not want to get rid of Javid’s advisers just for show.

Markets have concluded that Javid’s departure means that the fiscal boost in next month’s budget will be bigger, even at the expense of bending or breaking the fiscal rules, or coming up with new ones. We have been here before, though not usually so soon after an election. No doubt John McDonnell, Labour’s shadow chancellor, condemned by the Tories for fiscal irresponsibility just weeks ago, will be watching with interest. He is now onto his fourth Tory chancellor.

I discussed here last week how tight rules for day-to-day spending, implied by the policy of balancing the so-called current budget, sat badly along the planned big increase in infrastructure spending. You cannot have the latter, without some more of the former.

It is reasonable for markets to conclude that Javid’s departure means a looser fiscal policy. Sunak is a fiscal conservative but the circumstances of his appointment, and the clear desire of Downing Street to take more control of the Treasury, means that matters may not entirely be under his control. Either in the budget or in the spending review planned for later this year, we may see a stronger “austerity has ended” theme than Javid was planning, in other words more day-to-day spending.

Sunday, February 09, 2020
The government is getting itself into a spending tangle
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

A lot has changed since the general election two months ago. Businesses and consumers are more optimistic and there should be a decent growth rebound in the first quarter, after a pretty grim end to 2019. Surveys such as the purchasing managers’ index suggest the optimism rebound was not just relief at the fact that the country avoided a Corbyn government. It strengthened through the month of January, so the final reading was up on the earlier “flash” estimate.

Not everything in the garden is rosy, of course. China is now big enough to have an impact on the global economy, and its first quarter will be very weak because of the coronavirus outbreak. As medical personnel around the world deal with the actual contagion, economists are trying to work out the economic contagion, and the impact on other countries, including Britain.

At home, some are waiting for the post-election boost in optimism to be reflected in hard numbers. Consumers were not confident enough to buy new cars last month, with sales down by 7.3% on a year earlier, driven by a large 13.9% drop in sales to private buyers. There may, however, be a lag involved. People do not make big purchases at the drop of a hat.

The question of how much follow-through there is from this optimism bounce is a key one for the economy. What will the assessment be of the Office for Budget Responsibility (OBR), the government’s economic and fiscal watchdog, which is now hard at work preparing the ground for the March 11 budget, now just over a month away? Will it buy into the bounce or will it, like the Bank of England 10 days ago, offer a downbeat view of the outlook for growth and productivity?

It matters a lot. In the OBR’s short history – it is now coming up to its 10th anniversary and looking for a new chairman to replace Robert Chote when he reaches his maximum term – it has regularly dashed the hopes of chancellors on the amount of cash they have to play with. The weaker growth is, and the longer than stagnant productivity persists, the worse the outlook for the public finances.

For, while the political landscape has changed, the eternal verities that guide the public finances remain. Governments which want to increase public spending either have to tax more or they have to borrow more. Governments which want to cut taxes, meanwhile, have to reduce spending or they have to borrow more. And, as the above logic suggests, governments which want to both increase spending and cut taxes, have to borrow even more.

That reality was in danger of being forgotten in the run-up to the election, and even after it. Suddenly, it seemed that a Tory party that had spent years being parsimonious, if that is not too kind a word, had found a pot of gold at the end of the rainbow. That may have been the impression, though it was never the view in the Treasury, using the OBR as well as the Institute for Fiscal Studies as back-up. And now, a crunch is approaching.

It is not unusual for 10 and 11 Downing Street to be at loggerheads in the run-up to a budget. A prime minister who is quick to dismiss “gloomsters” probably thinks of the Treasury as a bunch of downbeat bean-counters, though to be fair he has sided with Sajid Javid, the chancellor, on most of the important decisions. Those decisions include the policy of balancing the so-called current budget, adopted before the election.

It seemed sensible enough. If you adopt a fiscal rule which allows for a big “levelling up” boost to infrastructure spending – capital spending by government – then it made sense to reassure the markets, and establish some clear blue water between the Tories and Labour, by pledging that there will be no free-for-all when it comes to day-to-day public spending, or unfunded tax cuts.

These things can, however, have unforeseen consequences. Balancing the current budget is not an easy task. A balanced current budget, or better a small surplus, has only been achieved, when properly measured on a cyclically-adjusted basis, five times in the past 30 years, though one of those years was as recent as 2018-19.

Sunday, February 02, 2020
No rate cut, but no chance of a hike either
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

In the end, like a lot of sporting events in which there is a lot of excitement in the build-up, it was not that much of a contest. On Thursday lunchtime, as you will know, the Bank of England’s monetary policy committee (MPC) left interest rates unchanged at 0.75% by the same 7-2 majority as in November and December.

What was billed in the City as the most unpredictable decision on rates for years passed without incident. Those who were confident of a cut in rates will live to fight another day, I hope, and are busy blaming the Bank’s mixed signals. Those who thought the markets had got ahead of themselves in predicting a cut, particularly earlier last month when the probability rose to more than 70%, will have enjoyed their moment of preening.

I never preen but, as I argued here, there was no need to cut now and it would have been premature to do so, although the question of whether lower rates will be needed later in the year remains a live one. The Bank is assuming that a “deep” free trade agreement between Britain and the EU can be finalised before the end of the year, because that is government policy. There is no guarantee of that.

The Bank’s new growth forecasts, just 0.8% this year, rising to 1.4% next, are strikingly weak. If this is the “Boris bounce”, the government needs a new trampoline. When growth overall is just 0.8%, some sectors and regions of the economy will be in recession. For others it will feel like it. Nobody on the MPC can be blamed for voting for lower interest rates in these circumstances.

Despite the fact that there was no change, the excitement leading up to Thursday’s decision made more than a little nostalgic for the days when interest rate changes were big, bold and unpredictable. I remember a month which started with official interest rates at 9.5% and ended at 14%.

Most people in business, I would guess, are glad that those days are over, and interest rates boringly low. But, and we should be realistic about this, there is also plainly a limit on what interest rates can do. Deciding whether or not to cut when interest rates are only 0.75% is not quite a case of bald men arguing over a comb but it can never be transformative. Sterling edged up a little after the non-cut, but there was not much else.

This is not to say that monetary policy can do nothing. The package of measures the Bank announced in August 2016, in the wake of the EU referendum, undoubtedly helped support the economy. Although people remember most that there was a cut in official interest rates then, from 0.5% to just 0.25%, that was the least important part of the Bank’s stabilising package, which included a further £65 billion of quantitative easing and a term funding scheme for the banks to ensure that they continued lending into the economy.

In normal circumstances, however, interest rates moves at this level are more about signalling by central banks than their actual impact. Last year saw mortgage rates on new loans fall by between 0.25 and 0.5 percentage points, depending on the type of loan.

This fall was market-driven, and mostly occurred during a period when the Bank’s declared position was that it was aiming for “limited and gradual” rate rises. There were no votes for cuts in rates until November. Lower mortgage rates reflected the drop in long-term interest rates; falling gilt yields (the market interest rate on UK government bonds).

Mortgage rates used to fall only when official interest rates were reduced and, indeed, made any such reduction a big deal for households. Not any longer.
Thursday was the last interest rate announcement to be presided over by Mark Carney, who channelled Edith Piaf when he said that he had no regrets about the conduct of monetary policy on his watch.

Sunday, January 26, 2020
Forget the Romans, what has the EU ever done for us?
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

The moment has nearly arrived. Unless something really unusual happens in the next few days, this will be the last column I write here while Britain is a member of the European Union. By next weekend we will be out. And, while there will then be a transition period, at least until the end of the year, from 11pm next Friday, we will be a “third country”, no longer an EU member state.

It is possible, in 10, 15 or 20 years’ time that a future politician will decide that Britain is best served by reapplying for EU membership. But both the UK and the EU will have changed by then, and the current highly favourable terms of membership – including a permanent opt-out from joining the euro – will not be on offer. And I will have long since stopped writing in this slot, should it still exist.

Until the past 3-4 years, EU membership has been in the background, not particularly an issue for the public. Like the weather, it had its good and bad points and, like the weather, it seemed permanent.

But, as we prepare to leave, it is a good time to reflect. The sad death of Terry Jones of Monty Python offers a suitable framing device. In Life of Brian, either the Judean People’s Front or the People’s Front of Judea – readers will tell me which one – ask “what have the Romans ever done for us?” So the question, in tribute to Jones, is what EU membership has ever done for us.

Most people will be aware that the EU is important for UK trade. EU membership, along with successive rounds of world trade liberalisation – broken by the US-led protectionism of recent years - , has made our economy more open, and openness is good for growth.

In 2018, the last full year for which trade data is available, more than 49% of UK exports of goods and over 40% of exports of services went to the EU; a combined 45% or so.

In a clumsy, investment-curbing intervention last weekend, Sajid Javid, the chancellor, said that business should prepare for a future in which UK rules and regulations were no longer aligned with the EU. Businesses, he suggested, had had more than three years to prepare for this.

This is nonsense. Until last summer, government policy was that the UK would be closely aligned with EU rules for trade in goods. And, even if things have changed under the new government, there is a way of doing these things. As one exasperated former cabinet minister said to me, we will be fully aligned with the EU when we leave. “Dynamic” realignment will happen gradually, and over many years. Javid did offer UK business leaders a bit of reassurance in Davos by saying that we will not diverge “for the sake of it”.

Some sectors of the economy will decide to remain aligned to EU rules, whatever the government chooses to do. This will help determine whether there is sharp fall-off in Britain’s EU trade, as some fear, or more likely a gradual weakening.

The government, in seeking to move away from EU rules, appears to have fallen for the myth that its red tape is strangling British business. It is not. When it comes to product and market regulation, the UK is at the flexible end of the spectrum, OECD figures show, alongside other “Anglo-Saxon” economies such as America, Canada, Australia and New Zealand. The red tape that stifles is largely home-grown, in planning, the tax system and domestically-imposed health and safety rules.

As for trade, the former Australian prime minister Malcolm Turnbull put it well the other day when he said a UK trade deal with his country will not be a substitute for EU trade. Indeed, UK exports to Australia are 1.7% of the total. Add New Zealand and it takes it up to 2%. The government hosted an Africa summit last week. Only 3% of UK exports go there. Yes, we sell more to Ireland (5.5% of exports) than Africa and Australasia combined. Some 9% of UK exports go to the Commonwealth, a fifth of the EU share, and the Commonwealth share is lower than it was a few years ago.

The trade picture, perhaps, is familiar, the broader economic record less so. In the aftermath of the Second World War, European countries, including Britain, were in receipt of Marshall aid to rebuild their economies.

Some, the original six of Germany, France, Italy, Belgium, the Netherlands and Luxembourg moved toward closer economic integration in the 1950s, first with the establishment of the coal and steel community and then the European Economic Community (EEC).

Britain responded, in 1960 by being instrumental in setting up the EFTA, the European Free Trade Association. Indeed, it is interesting that if we had stayed with EFTA, and never joined the EEC, we would probably now be facing a closer relationship with the EU than the one we appear to be heading for.

But, and only older readers will understand this reference, EFTA was the Betamax to the VHS of the EEC – the one that did not get widely adopted – and soon it was clear to just about everybody, including business, that in the 1950s and 1960s Britain’s economic performance fell behind European competitors. The clamour to join the EEC followed.

The best overall measure of an economy’s success, and of prosperity, is gross domestic product (GDP) per capita. Growth in Britain’s GDP per capita fell behind the integrating European economies, notably Germany and France, in the 1950s and 1960s. After membership, however, it improved, with the turn occurring in the late 1970s.

Sunday, January 19, 2020
A rate cut now would be a vote of no confidence
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

Things have taken an unexpected turn, which is always interesting. Financial markets have, in the space of a couple of weeks, gone from thinking that there is no chance of an interest rate cut this month to expecting one. January 30 will be the last interest rate decision presided over by Mark Carney as Bank of England governor.

Though he does not hand over to Andrew Bailey until March, who will be in place for the next monetary policy committee (MPC) meeting later that month, markets had expected his final meeting to be, in interest rate terms, a non-event.

That would not be unusual. Carney will, by my reckoning, have chaired 66 MPC meetings when he steps down and on only three occasions – once to cut, twice to raise – have interest rates been changed in that time.

Markets, however, see roughly a 60% chance of a cut at the end of this month. Are they right to expect it? And, as importantly, would the Bank be right to cut rates?
The weeks surrounding Christmas and New Year are traditionally fallow when it comes to new economic data, and harder than usual to interpret. Lord (Mervyn) King, Carney’s predecessor, once said that for retail sales, the true meaning of Christmas only became clear by Easter.

In its last meeting of 2019, on December 19, there were two votes to cut interest rates but the majority on the MPC, the seven voting for no change, declared that the existing stance – a Bank rate of 0.75% - was “appropriate”.

The economy was doing more or less as expected, they said, and while growth was expected to be “below potential” in the short term, it should “rise above it next spring, given the assumed combined support from lower uncertainty, easier fiscal policy and somewhat stronger global growth”.

The lower uncertainty refers to both the December 12 election result and the certainty of Brexit on January 31, while the spring will see the economy gain from Sajid Javid’s planned spending boost and the chancellor’s cut in National Insurance, achieved through raising the threshold at which it starts to be paid from £8,628 to £9,500.

The question for the majority, then, is what has changed over the past month. In terms of hard data, there has not been a lot. Monthly gross domestic product figures showed a 0.3% fall in November, alongside modest upward revisions in earlier months. They suggest that the economy is on course to have stagnated in the final quarter of 2019. Retail sales have done worse than stagnating, falling by 0.6% last month, and by 1% in the fourth quarter.

Inflation is also well below target, dropping to 1.3% in December, from 1.5% in October and November. But, given that the Bank was expecting a 1.4% average in the final quarter of last year, that will not have come as too much of a surprise.

“Soft” data, in the form of surveys, suggests that something is stirring, along the lines that the MPC majority expected. It began with the service sector purchasing managers’ index, an indicator which is set to be prominent again very soon. It showed a stronger reading than the earlier “flash” estimate, and suggested business confidence had been boosted the election result.

An even stronger finding was in the Deloitte survey of CFOs (chief financial officers), a week or so ago, it showed a sharp rebound in confidence and stronger expectations for investment and employment.

Perhaps most impressive of all was the latest RICS (Royal Institution of Chartered Surveyors) residential market survey. For those who do not follow it, I can tell you that the RICS survey has been downbeat for some time. But sales expectations picket up “noticeably” after the election, it said, as did enquiries from buyers and agents’ price expectations. Buyers and sellers are more confident.

If you were looking at the hard data, which is backward looking, and contrasting it with the survey data, some of which is forward looking, you might conclude that there is not much of a case for a rate cut.

Sunday, January 12, 2020
Yes, invest in the regions, but don't expect miracles
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

Some Treasury traditions have been lost in the mists of time, which is a pity. January used to be the time when the Treasury floated ideas for the March budget. Hares were set running, some of which found their way into newspapers like this one, though sometimes they fell by the wayside before the day itself.

Chancellors would take senior officials to Dorneywood, the Buckinghamshire country home that goes with the job, or occasionally borrow Chevening, the foreign secretary’s official residence in Kent. There, interspersed with parlour games and snooker matches between officials and ministers, a budget brainstorming would take place.

Things have moved on. Even with two months to go until the March 11 budget, the chancellor, Sajid Javid, appears to have decided what will be in it. Maybe that is understandable as he was expecting to deliver it on November 6 last year until the Brexit delay and the general election intervened. Chancellors normally try to dial down the excitement till nearer the day, but not this one.

The only hares set running are the ones released by Javid. On a visit to Manchester a few days ago, when the date of the budget was announced, he promised it would “set out ambitious plans to unleash Britain’s potential, level up across the UK and usher in a decade of renewal”.

Javid added later that “there will be up to an extra £100bn of investment in infrastructure over the next few years that will be transformative for every part of our country”.

For business leaders in Britain’s underperforming regions, all this came as good news. Governments have a habit of promising a lot before elections and reining back after them, but not this one. Indeed, the election, which delivered Tory MPs in parts of the country where the party’s candidates used to be lambs to the slaughter, reinforced the argument for the government to deliver for the regions.

So all this is good, and welcome, and by preparing the markets in advance the chancellor has probably ensured that there will be no adverse reaction when he unveils his infrastructure revolution. His argument, that it is entirely logical for the government to borrow when it can do so cheaply, still holds. Indeed, one of the ratings agencies, S&P, took Britain’s sovereign debt off negative watch in the aftermath of the election.

We should still not expect miracles. Encouraged by the government, and even the chancellor himself, there have been strong suggestions in recent weeks that, in effect, Treasury rules have prevented the necessary investment in infrastructure in the regions for decades. Those rules, embodied in what is known as the green book, are said to have imposed a London-centric bias on infrastructure decisions, by concentrating public investment in areas where prosperity and productivity are already highest.

A recent paper in the journal Regional Studies by Diane Coyle and Marianne Sensier, called the Imperial Treasury, offered support for this view. However, the green book has been extensively revised over the years to be made more flexible and, as the Coyle and Sensier’s paper also pointed out, politics often means that projects outside London and the southeast that meet the relevant cost-benefit tests are less likely to be approved by ministers.

If the regions feel hard done by when it comes to infrastructure investment in recent years , and they do, they should blame politicians, not Treasury rules. Also, some rules are necessary to prevent politicians spending purely for party advantage; what they call pork barrel politics in America.

Regional productivity comparisons are, though, a reminder of the mountain there is to climb. Once it was possible to define regional economic differences in terms of unemployment rates, but, while northeast England has the UK’s highest unemployment rate, at 6.1%, the discrepancies are much smaller than they used to be. London, for example, has 4.5% unemployment, which is higher than the national average and, for that matter, higher than the northwest or Yorkshire and the Humber. Northern Ireland has an unemployment rate so low, 2.3%, that at first I thought it must be a misprint.

When it comes to productivity, however, and the generally accepted measure of GVA (gross valued added), the latest official figures are stark. London’s GVA per head, £50,547, is roughly 2½ times that of the poorest regions of the UK, Wales and thenortheast, and twice as much, or more, in other parts of the Midlands and northern England.

The London figure exaggerates its productivity lead, as the capital benefits from commuters from the rest of the southeast and beyond. Yet on a fairer productivity comparison, GVA per hour worked, London is almost 60% more productive than Yorkshire and the Humber, the East Midlands, Wales and Northern Ireland. These differences are longstanding. More public investment in the regions should make a difference, though the effects have been slow to show through in the past.

Sunday, January 05, 2020
Hoping for the best on Brexit and world trade
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt.

This is a time for looking forward, not back, but I thought it would be instructive to look back briefly at what I have said in recent years in these new year pieces. This time last year I wrote that the economic outlook depended to a disturbingly large extent on achieving a smooth Brexit but I was also worried about the balance of payments.

I was right to be worried. Though there was an improvement in the third quarter, the current account deficit in the first quarter was an elephantine £37.4bn, 6.8% of gross domestic product, slipping to 4.4% in the second quarter and 2.8% in the third. It remains hefty.

Two years ago, after a good year for the global economy, which had helped cushion the effects of Brexit uncertainty on Britain, the question was whether it would continue. But 2018 turned out to be disappointing, mainly because of Donald Trump’s trade wars. Protectionism, as in the past, had showed itself to be detrimental to growth.

The global economy was also a theme three years ago, when it was possible to look ahead to a brighter period for the global economy, which was helping the economy in Britain. So it turned out. In 2017 America and the world benefited from “good” Trump, the tax-cutting one. Sadly, that version did not last.

Four years ago, and it seems like an age, I wrote that the EU referendum was the biggest cloud on the horizon, as it has proved. The question now is whether that cloud has lifted.

The two themes of the past four years remain the most relevant now. Certainly, I would hope to be writing a lot less about Brexit in the coming year. Will decision makers in the economy put it to one side? If so, could that combine with a better outlook for the world economy, driven by an easing of trade tensions, than last year’s weakest-since-2009 performance, so that things could turn out better?

Most forecasters, it should be said, are maintaining a cautious attitude to the prospect of a meaningful growth revival this year. If I take those which topped my annual forecasting league table last week, their growth predictions, as submitted to the Treasury’s monthly compilation, published just before Christmas on December 18, were still pretty downbeat.

Santander has a prediction of 1% growth for 2020, as did HSBC and Schroders, with Natwest Markets and Daiwa Capital Markets slightly stronger at 1.3%, and Pantheon Macroeconomics 1.4%. The average growth prediction for 2020 was just 1.1%, which would make 2020 the weakest year since the horrible year of 2009.
If there is a health warning to be attached to these forecasts, going beyond the normal note of caution, it is that most forecasters have yet to take full account of Britain’s changed political situation and, for the first time, near-certainty about the date of Britain’s formal departure from the EU.

This opens up a real-life economic experiment. Has it been just the uncertainty bearing down on the economy’s performance? Or is it the predicted economic hit as we move towards a weaker relationship with our biggest trading partner? I would argue mainly that second of these, while not ignoring the uncertainty factor. But we should also remember that, as far as business investment is concerned, as I have long argued, the uncertainty will not end on January 31. The latest Bank of England decision maker panel survey shows that 53% of firms think Brexit will remain a major source of uncertainty, with a significant proportion not expecting it to be resolved until at least 2021.

I am not suggesting, on any scenario, that we should be looking forward to a Boris boom or, as one Tory-supporting tabloid newspaper oddly had it, a roaring twenties (there was a general strike in the last one, and the Great Depression followed it).

The jury is still out on the new government. Its first few months last year, dominated as they were by Brexit and parliamentary shenanigans, saw a lot of talk about the future but very little action. Blue-sky thinking is all very well but it needs to be applied.