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Saturday 26th August 2017
Hi Friend,
Immigration ... EU citizens are voting with their feet ...
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U.K. net immigration is falling. EU citizens are voting with their feet and they are not the only ones! According to the latest data from the ONS, net migration was 246,000 in the year ending March 2017, down 81,000 from 327,000 prior year.
More than half of the change in net migration can be explained by a decrease in the number of EU citizens. Higher growth in Europe, pressure on Euro adjusted earnings and the ambivalence, neigh indifference, of government attitudes to EU citizens is forcing a rethink about the desirability of living and working in the UK.
And what of education? 139,000 of entries into the UK were for the purpose of formal study. With 25,000 U.K. students heading overseas, the net gain to the education sector in the UK was 114,000. It is time to take students out of the immigration stats once and for all.
Net migration, excluding students, was just 132,000. Unemployment is at a record low of 4.4%. Recruitment challenges in agriculture, health, welfare, education are increasing. With 750,000 vacancies, the net contribution of 100,000 immigrants each year, will be a challenge to growth in the economy. It will also be a challenge to business, forced to pay for the privilege of employing those of foreign disposition.
Should we worry about the prospects for Brexit?
Not at all, according to Patrick Minford, Chairman of the Economists for Free Trade. Hard Brexit would eliminate protection and regulation in favour of free trade and full competition. It would remove taxpayer subsidy from unskilled migration. These moves would benefit UK consumers, lowering the cost of living by 8%, raising productivity across the economy, with a total gain in UK welfare and GDP of around 4% from free trade and another 2% from improved regulation, a total gain to GDP of 6%.
On top of this there are gains from regaining our net EU budget contribution (0.6% of GDP) and removing the taxpayer subsidy to unskilled Immigration (0.2% of GDP). There will also be longer term gains to growth through enhanced innovation and entrepreneurial activity.
Just as the "abolition of the Corn Laws precipitated the Industrial Revolution", Hard Brexit is good for the UK economically while ‘soft’ Brexit leaves us as badly off as before. Reassuring? Not really but it gets better ...
According to Crawford Falconer Chief Trade Negotiation adviser at the Department for International Trade … Britain post Brexit, can drive the world toward free trade and with it bring world peace and prosperity ... Excellent.
Some times I think of six impossible things before breakfast, the Economists for Free trade manage to cram most of them into "From Project Fear to Project Prosperity" How Brexit is worth £135 billion to the UK economy! Yep, fit that on the side of a bus!
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Of Growth and Borrowing ...
Government borrowing was in surplus in July, the first time since 2002. OK let's not get too excited. £0.2 billion is a small drop in the near £2 trillion debt overall but it helps. Year to date, borrowing is up by £1.9 billion to £22.8 billion. For the year as a whole, we expect the deficit to be around £55 billion compared to £45 billion in the last financial year. It's all going so well, or is it?
The ticking time bomb is debt. Interest costs in the first four months of the year were up by 23%. In the full year debt service costs could rise to £60 billion compared to £48.4 billion last year. The full cost in the year is mitigated by the "Money for Nothing, Gilts for Free" QE Rebate of £12 billion last year but the warning is clear. Normalised interest rates and gilt yields will increase the debt service cost to over £90 billion. No time to relax spending plans. No time to reverse the Bank of England gilt holdings anytime soon. The kindness of strangers and the generosity of an Old Lady in Threadneedle Street are too important for solvency.
The second estimate of GDP was released this week. Growth in the economy was up by 1.7% in the seond quarter. There were little or no revisions to output growth. The service sector was once again the driver of expansion, up by 2.3% following adjustments to the data earlier published for April and May.
Household spending growth was up by 2%. Business investment was flat. The trade deficit continues to provide a negative impact on overall expansion. So what now of the year as a whole? Markets expect growth on 1.6% in the year, slowing further in to 2018 as household incomes are squeezed and investment falls. We remain more optimistic for the current year. Growth of around 1.9% is possible, as inflation moderates towards the end of the year.
Forecasting into 2018 becomes more difficult. The world economy is moving towards steady growth. The Eurozone is recovering. In the U.K. uncertainty about the Brexit deal will hamper business investment. The Euro is the currency of choice, pushing the pound to parity in the near term. Without a policy for the currency and for EU negotiations, some clarity is required if the UK is not to languish further in the world growth league.
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| West Wing WTF ... Resist! this is not normal ...
The President was in Pheonix this week. Following disastrous comments post Charlottesville, Trump needed a rally. Like a junkie in need of a fix, Trump likes to centre stage with an audience that can't ask awkward questions and answer back.
Build that Wall! The pressure is off the Mexican government to pay for the wall apparently. Trump is threatening to shut down the Federal Government unless Congress votes through some money to begin foundations at least. The debt ceiling crisis looms in the months ahead. Trump is now attacking the Democrats and the Republicans alike. Mitch McConnell and Paul Ryan are singled out for special treatment. Attacks on the leader of the party and the leader of the house ensure that as things go wrong, and they will, Trump has his scapegoats in place.
"Everyone is under you and no-one is listening" McConnell is realistic about his role as leader in the party. "Just like the groundsman in the cemetery" he explained. He could have equally been speaking about the President. Trump is intent on digging his own political grave in the process.
General John Kelly is trying to bring order to the chaos in the White House, not without some difficulty. “The best job I ever had was as a sergeant in the Marine Corps,” he said with a laugh among friends recently, “and after one week on this job, I believe the best job I ever had is as a sergeant in the Marine Corps.”
That's all from the West Wing Whisky Tango Foxtrot this week. It has been a chaotic week, make that five weeks. The President continues to attack the Attorney General, the leader of the Republican Party, the leader of the house and the GOP as a whole. Who would have thought politics could be so difficult ...
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| | | | Don't
Miss the Economics Conference on the 13th October. Our theme is the
Economics of Greater Manchester. We will be talking about the Inclusive
Growth Challenge, Balancing the Books and the Sectors Driving Growth in
the City Region! Another Great Conference in the pro-manchester series . We have a great line up of speakers to be announced soon. Book Now Don't Miss Out ... |
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John
No market updates this week, Mary and I are in Sicily, personally experiencing the demise of sterling and the rise of the Euro. Have a great week-end ...
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