Saturday, 29 April 2023

On a more optimistic note:

COMMENT

It is a very long time since I felt so optimistic about Britain’s economic future

Our prime minister is quietly filling in the blank pages of the UK’s post-EU playbook

AMBROSE EVANS-PRITCHARD25 April 2023 • 3:04pm

Rishi Sunak UK — ‘Never underestimate the value of sheer managerial competence’ CREDIT: Justin Tallis/Getty Images

Britain was conspicuously absent when a group of close neighbours issued the Esbjerg Declaration a year ago, unveiling plans to turn the North Sea into a massive green power plant for half of Europe.

The exclusion made no economic sense since Britain is the world leader in offshore wind. Surplus electricity from giant wind parks on the Dogger Bank will be a lynchpin of European clean power by the early 2030s. It will be an integral part of Europe’s post-Putin energy security.

That frosty and petulant stand-off already seems like another world. The UK reached an accord with the EU’s North Seas Energy Cooperation (NSEC) last December on a basis of sovereign parity. This week British ministers are taking part in the North Sea Summit in Ostend as full equals.

What has happened in the meantime is the invasion of Ukraine and a complete change in the political weather on both sides of the Channel.

The UK’s import terminals for liquefied natural gas are the unsung heroes of Europe’s energy war. They have been a conduit for large volumes of LNG from the US and Qatar, either through the UK’s gas pipelines to the Continent or in the form of electricity via interconnectors.

This additional supply has quietly covered a critical shortfall. It is a key reason why the EU survived the winter without blackouts, and was able to refill its gas storage sites. The UK is today shipping more gas to the EU than Russia. The British and Dutch governments this week announced a joint plan to build the LionLink cable, the world’s most powerful and advanced electricity interconnector.

SOURCE: Bloomberg

It is perhaps a minor detail in the blossoming rapprochement between London and EU capitals, but such detail is more illuminating than the stale invective over Brexit in the Westminster media. The larger story is that Britain is no longer being treated – or behaving – as a secessionist apostate. The logic of mutual interest is reasserting itself.

The Windsor Framework has been the clincher, draining poison from relations with Brussels and Washington alike. This has turbo-charged a ‘rerating’ of UK Inc in the minds of global investors and economists that has already been underway for several months – even if the International Monetary Fund has yet to smell the coffee.

Standard & Poor’s upgraded the UK’s sovereign debt rating on Friday from negative watch to stable AA, citing both the Windsor accord and Rishi Sunak’s fiscal cleansing. It is becoming clearer that last year’s catastrophism was greatly overblown.

The agency said the budget deficit will average 3.7pc of GDP over 2023-2025 rather than the earlier forecast of 5.5pc. The debt ratio will start falling from a peak of 97.7pc as soon as this year. It will not keep rising relentlessly through the 2020s as the IMF suggests. S&P said the energy price cap would cost nothing beyond mid-2023.

The Office for National Statistics said this week that government borrowing was £13.2bn lower than originally thought for the 2022-2023 financial year.

Revised ONS data also show that economic output is above pre-pandemic levels, though one continues to hear the uncorrected claim that the UK is the only G7 country still trailing this miserable milestone. The picture is poor but not so different from the sluggish performance of Germany and Japan. Overall, the UK’s economic growth since the referendum has been roughly the same as German growth.

Nor is investment as bad as we thought. Charts are still circulating that purport to show business investment a long way below 2016 levels. Again, revised ONS figures show that is not the case. Gross fixed capital formation (GFCF) is significantly higher than in 2016. Furthermore, it is running at 18.7pc of GDP, above its 25-year average.

The pound has been the star of G10 currencies this year, albeit rising from a low base. This should not be overinterpreted. It is mostly a dollar story and some of the latest strength reflects higher gilt yields due to stubborn inflation. What is of interest, however, is IMF data on foreign exchange reserves held by central banks.

Sterling’s share of reserves has risen over the last year to 4.95pc. The percentage has held up slightly better than the dollar or the euro since mid-2016, even adjusting for exchange rate distortions. Clearly, the world’s omnipotent reserve managers have not lost confidence in this country.

Nor has the Truss mini-Budget done lasting damage to British economic credibility as many feared. What it told the world is that the institutional system can act with speed and ruthless efficiency in dealing with a wayward government.

The Bank of England won plaudits from global peers for putting out a dangerous brush-fire, while at the same time refusing to accommodate fiscal adventurism. The Treasury and the Office for Budget Responsibility emerged stronger.

This cathartic episode may have been an establishment coup, but it was not an anti-Brexit coup. Rishi Sunak has closed off any serious possibility of the UK rejoining the EU single market and the customs union by instead joining the Pacific free trade pact (CPTPP).

The fast-expanding CPTPP demolishes the fallacy that the world is split into three hegemonic trade blocs – US, EU, and China – and that any country left outside this structure is a powerless supplicant.

The pact will probably be the world’s biggest trade bloc by a wide margin before the end of this decade. It does not require political union, or swallowing an acquis, or accepting the jurisdiction of a supranational court. It is a club of equals based on the principles of equivalence and mutual recognition. It chiefly wants to trade.

It may over time outflank the EU’s trade directorate with a more open regime for digital commerce and services. It sits at the heart of the world’s fastest growing economic region. Membership raises the UK’s implicit bargaining power with Europe by several notches.

Mr Sunak is quietly filling in the blank pages of Britain’s post-EU playbook. Personally, I owe him an apology. Last year I thought his fiscal policy was too contractionary for an economy heading into five quarters of deep recession, or so the Bank of England told us. Yet the economy has refused to buckle.

I feared that his six-point rise in corporation tax would choke inward investment. But a “full-expensing” allowance of 100pc in the Budget may neutralise the effect, and possibly in a way that is ultimately shrewder.

I have yet to see an overarching economic and industrial strategy, and have yet to be convinced that Mr Sunak fully recognises the potency of Britain’s green-tech as an economic accelerator. But this is to quibble. Never underestimate the value of sheer managerial competence.

This country may yet clatter into a bad recession. But if it does so, it will be in good company, brought down by monetary over-tightening in the US and Europe. Some IMF staffer may think that Britain will be a particular sink of pauperisation in 2023 – worse even than Russia – but sophisticated global opinion has already moved on.

The UK has underperformed the eurozone slightly over the last seven years. It may outperform slightly over the next seven. For the first time in what seems like an eternity, I am starting to feel the first flush of optimism.

Friday, 28 April 2023

Poor health - the cost to the economy:

From The Guardian - it's free and Larry Elliott is a good read:

Britain’s poor record on health costs economy £43bn a year, says report

Thinktank urges ministers to make reducing long-term sickness health equivalent of drive for net zero

Britain’s poor record on health is costing the economy £43bn a year and cutting the annual incomes of individuals affected by long-term sickness by up to £2,200 a year on average, a report says.

With official figures showing more days lost to sickness than at any time since 2004, the Institute for Public Policy Research said improving the country’s health was vital both for the economy and to boost the incomes of disadvantaged groups.

The left of centre thinktank said the government should aim to make Britain the healthiest country in the world within 30 years and urged ministers to make efforts to tackle long-term sickness the health equivalent of the drive for net zero carbon emissions.

In a report that covered seven years before and during the Covid pandemic, the IPPR said the health of the population was going backwards. The UK had rising rates of death and impairment – including greater incidence of long-term health conditions, and since 1960 had fallen from 7th to 23rd for life expectancy among members of the Organisation for Economic Co-operation and Development group of wealthy countries.

Sickness was a factor in half the people leaving work and had a marked impact on an individual’s income and job prospects, the thinktank said. The report found that in the the five years before the pandemic, the annual earnings of someone with a new physical illness fell by £1,800 on average. The impact on annual earnings was even more marked for people with a new mental health condition, falling by about £2,200 on average.

Since 2020, someone with a new chronic physical illness experienced an average fall of £1,400 in annual earnings, while the onset of a mental health condition the decrease was about £1,700 on average.

The IPPR said the UK needed a new health and prosperity legislation modelled on the 2008 Climate Change Act to “hardwire” health into policy making.

The report found loss of earnings after sickness had a number of causes including people leaving their job, working fewer hours, or not returning to work when they might have done so if in better health.

IPPR said: “For many, these costs prove life changing. Among those diagnosed with a long-term illness since the pandemic, two in five lost 10% or more of their earnings. Chronic physical conditions are estimated to have driven 700,000 people to leave employment in the same period, forgoing all their earned income.”

Those groups hardest hit by the impact of sickness – the low paid, women and people from minority ethnic backgrounds – would benefit most from an improvement in health, the IPPR added.

Dame Sally Davies, a former chief medical officer for England, who co-chairs the IPPR commission on health and prosperity, said: “We now know that the UK does worse on health than most other comparable countries – and that this has a tremendous human and economic cost. We also know exactly what policies and innovations could transform health. So it is mystifying why UK politicians, across all parties, have failed to take decisive action.

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“We need a radical increase in our national ambition – equivalent to the Victorian efforts to transform sanitation and clear slums. Why shouldn’t Britain be the healthiest country in the world?”

Figures from the Office for National Statistics published on Wednesday showed the sickness absence rate – the percentage of working hours lost because of sickness or injury – rose to 2.6% in 2022, an increase of 0.4 percentage points from 2021 and the highest since 2004, when it was 2.7%.

Carys Roberts, the IPPR executive director and a member of its commission on health and prosperity, said: “Designed well, missions can work to transform agendas. This has been true of climate change where – while much still needs to be done – the ambition of net-zero has catalysed and coordinated change.

“That’s why we’re calling for a health mission to be hardwired into law – its own, long-term net zero.”