Exactly 12 months ago, as he stood at the despatch box to deliver his first Spring Statement, Philip Hammond announced he was at his “most positively Tigger-like.” While we can say with some certainty that he was not referring to the future departure of three of his colleagues to become members of The Independent Group (now colloquially known as “Tiggers”), in my view, he had good cause for such optimism; the British economy was enjoying one of the longest unbroken periods of growth in a generation, and the UK stock market was about to show its appreciation, with the FTSE 100 index staging a 14% rally from 23rd March to 22nd May.
If, as the saying goes, a week is a long time in politics, then a whole year can feel like a veritable eternity. As he delivered the 2019 edition, the Chancellor struck a distinctly more Eeyore-like tone, firmly in the knowledge that his ability to influence the future economic fortunes of the UK pales into insignificance by comparison with the impact of Brexit, whatever shape it may eventually take.
The Chancellor’s warnings about the economic damage that would flow from a no-deal Brexit were as clear as his obvious frustration that an acceptable withdrawal agreement is yet to be reached. Importantly though, there are genuine reasons for more optimism than may at first be clear.
There is little doubt in my mind that the failure to resolve the matter of how the UK will leave the EU has, only relatively recently, begun to impact on the economy. Financial markets, businesses and consumers loathe uncertainty, and the question mark over the shape of the UK’s future relationship with its largest and nearest trading partner has made its presence felt.
This “handbrake” effect was laid bare in the downgrading of the 2019 GDP growth forecast from the figure of 1.6% that was expected when the Chancellor announced the Budget in October 2018, to just 1.2% today.
It is, nevertheless, growth, and while forecasts for future years were either marginally trimmed or held at previous levels, it is heartening to see that the Office for Budget Responsibility still expects the UK’s GDP to expand in each of the calendar years to 2023.
With an impressively buoyant jobs market, inflation at or around target, rising real wages, and declining borrowing, like the Chancellor, I believe the potential of the UK economy is clear. Indeed, all other things being equal, this potential would be reflected in the performance of the share prices of the UK’s many world-class businesses.
While the risks of a disorderly exit from the EU are real and genuine, I continue to struggle to accept that a resolution will not, ultimately, be found. If and when what is undoubtedly a political, rather than an economic crisis can be resolved, there is, in my view, good reason to believe that investors – including those from overseas, who have left the UK stock market in droves since the 2016 referendum – will rediscover their enthusiasm for shares in UK businesses. If and when that happens, it would be fair to tell Tigger that he can safely come out of hiding.