Congratulations to Boris! Now perhaps we can go back to having too much food, too much drink and too much indulgence over the Christmas break, without having politics upsetting us all?
This huge victory will set the direction of politics for the next 10 years. Yes, we predict another term for BoJo starting in 2024. I am indebted to my older contact who has already pointed out that by December 2024, Labour will have only had one election-winning leader in 50 years. FIFTY YEARS!!! Step forward Tony Blair. You achieved the success that eluded Jim Callaghan, Michael Foot, Neil Kinnock, Gordon Brown, Ed Milliband and now Jeremy Corbyn. Oh, and John Smith too…… Did I miss any?
And to what can we allocate this massive swing in the vote for the Tory Party? Why, the EU!! What a change for the European project to be assisting the blues! It was the disdainful response of Frau Merkel to David Cameron’s pleas for moderating change that set the ball rolling towards a leave vote. This was compounded by the EU inaction during the referendum campaign. Where were Messrs Junckers and Tusk during the lead up to the vote? They were not in UK sharing the vision and love were they? Their next mistake was to play hardball too much with Mrs May, forcing her on to the defensive at home. One has to surmise that they thought a Remainer-Parliament was their best hope of keeping the UK on board. But they overplayed their hand, sending Theresa back with too much of a surrender bill. This off-hand treatment was compounded by the humiliation and shunning that Mrs May received from the other EU leaders at Salzburg. So the scene was set for Parliament to respond to the lack of co-operation… which led to Boris becoming leader…. which led to the election. One has to hope that they will work with Boris as an equal!
You’ve heard of meta-analyses, where academics who can’t be bothered to do their own research just nick everyone else’s hard work, crunch the numbers a bit, and come out with a super-accurate result? Well here is our META-POLL. After much reading of the papers, surfing the net, and even talking to people, we have concluded that the Tory party will win. (Bet you saw that coming eh?)
The Labour manifesto was written to appeal to hard-line left wingers – who would have voted for Jeremy anyway. Only the naïve or those too young to remember the 1970s could think that nationalisation is the answer. (See our earlier report on rail user numbers pre- and post – nationalisation). The “free” broadband idea went down well, but the practicalities are horrible. By the time it is built, at five times the original cost, technology will have made it obsolete. And the big beneficiaries will be the farmers and isolated rural communities – who will not be voting Labour under any circumstances. Meanwhile, their fence-sitting on Brexit feels a bit like “Follow Me….. I don’t know where we are going, but Follow Me!”
The Liberal Democrats have shown themselves to be neither liberal nor democratic. Their reverse Article 50 campaign can only appeal to the most die-hard europhiles. Meanwhile, Jo Swinson has not done well. Her claims to be PM in waiting invite the retort that she’ll be waiting a very long time.
The Tories have avoided a May-style manifesto-suicide-note. Divisive figures such as Rees-Mogg have been kept out of the limelight. Boris himself has picked his battles carefully, with more to lose than win.
So what happens now?
There are still considerable risks for Mr Johnson. Will the left-leaning students be too busy recovering from their end-of-term parties to vote?
Just how many people were too embarrassed to tell pollsters that they would vote Tory (but will anyway)? Will tactical voting have any impact? Will Mr Trump try to intervene? He is not great at keeping his thoughts to himself is he? That could hurt Boris. In this last week, we expect the Tories to try to refocus on Brexit as the major issue – and Labour to try to talk about virtually anything else!
What does it all mean for Asset Prices?
The market had a lost year in 2019, with too much uncertainty. A Tory win is about 70% baked into the market, so we expect a moderate bounce on 13 December. This will be most pronounced for the likes of BT and other nationalisation victims. Despite longer term trading arrangements still being in the air, we feel that 2020 will turn into a log bull run for equities and commercial property, as investors get back to the serious business of making money.
It is that time of the month when we ritually kick ourselves for making what turned out to be a stupid forecast six months ago – and then, without learning from our mistakes – we go on to make a crazy forecast for where FTSE will be in another half year.
BUT this time, we weren’t so far wrong. Back on 15 April, we had failed to leave the EU on the second deadline, and a new exit-date of 31 October had been decreed. Wisely, or perhaps by luck, we guessed that on 15 October, Brexit might not be established, or the future might be rather worrying. Quote “So we will work on the basis that Brexit is still on-going by October. “
Our forecast for 15 October was 7600, quite a reduction from the 8150 we had been predicting for September. Thus, we got the direction right, and a close of 7212 is pretty accurate by our standards.
The Next Six Months
Now for the next six months. British politics are somewhat unpredictable. We think that Boris might just pull it off and squeeze Brexit through tomorrow. The country (or at least 52%) will rejoice….. so there is no way the opposition will allow an election if Brexit goes ahead. Thus our central forecast is that Brexit happens, but then the minority government struggles on for several months until the demand for an election is overwhelming. This could easily be around our forecast date of 15 April 2020. However, a Brexit Deal will create an optimism and gentle release of pent up demand to support the UK economy over the next six months. Lack of Government interference with new laws will also help!
However, no country is an island. Okay, well some countries are islands. Malta comes to mind. But economically, the future of UK based businesses, with our new, outward looking trade policy, cannot be but affected by the world economy. We foresaw the potential of a recession by year end, and the data published since then has done nothing to change that view. The global economy, from US to China to EU (in that order) is definitely looking soft.
Where does that leave us?
The UK domestic economy should have a surge, this will be countered by weak global growth.
The UK stockmarket, is at rather low multiples of income, given the interest rate environment. This morning, www.dividenddata.co.uk quotes the FTSE100 yield at 4.53%. If / When Brexit is settled, we see scope for yield compression – and hence price rises – justified by the reduced uncertainty and risk.
In summary, we think UK growth will be supportive, global economics will undermine, but an extra boost will be given by removal of the Brexit factor. From a close yesterday of 7182, we see FTSE100 at 7600 on 15 April. This is an increase from the 7200 we expected for Jan – Mar next year.
We are three weeks away from Brexit Day, and yet there is no clarity. This is starting to look eerily familiar!
We have a PM who is trapped in office, but with no majority he is completely powerless. Meanwhile, the opposition is scared of an election, and is rather enjoying the discomfort of Boris.
It seems that the key date will be 19 October, a week on Saturday, the day when Boris is legally ordered by Parliament to write the letter asking for an extension.
Will he do it? We think not. Since the Benn Act (aka the Surrender Act) was rushed through, Boris has been at pains not to retreat from his ‘do or die’ message about 31 October. We can see why he would do that as background to his negotiations. If EU actually thought he could push through No Deal, then they would be much more keen to negotiate. This has to be true of Leo Varadker, Irish Taoiseach, who has most to lose from a No Deal. Clearly, they have not bought into that idea though.
How can these facts co-exist;-
Boris claims we will leave on 31 October, deal or no deal,
The Benn Act says he must ask for an extension in the event of no deal
The Conservatives have stated that they will not break the law
A deal looks extremely unlikely
The EU will agree to any extension request
Parliament will not let BoJo call a quick election?
It seems Boris must believe that there is a mechanism to spring free from the trap. Here is what we think could happen (yep, “could” implies our low level of confidence in our prediction).
The Queen’s Speech next week will essentially be the Conservative manifesto for an autumn election. It will get voted down, but still the opposition will not allow an election.
The big day will be 19 October, in the special Saturday Parliamentary session called by the Government. We see the following votes;-
A vote to lift the Benn Act and allow a No Deal to happen. This will be designed and phrased in terms of progressing or overturning the referendum result, to try to make the opposition look like it is ignoring the plebiscite. Narrowly, we think this will be voted down.
A vote to call a General Election. This will be designed to make the opposition look like it is scared of facing the electorate, especially given that they have earlier voted to “ignore the referendum”.
This is when Boris Johnson resigns as Prime Minister, and where he states that he will not do the usual caretaking role until a new one is appointed. We feel that BoJo has too much political capital tied up to write that letter. It would be interesting if Parliament voted to make him personally write a letter in which he does not believe. If he does not resign, I see him taking a jail sentence as less politically damaging than writing a letter.
If we have no Prime Minister – and hence no Government – then there will inevitably be a court case as to who can write the letter.
Then there is 14 days for a new Government to be formed. We do not think Mr Corbyn could attract enough support, as the LibDems will see little advantage of positioning themselves as Labour’s poodle.
A government of “National Unity”, which even the media have Christened “National Remainers” also seems unlikely, given how the various factions of the remainers struggle to agree on anything.
Another Conservative would be the natural choice, as they have the largest party…. could that be dragged out for the remaining 12 days?
So we drift towards 31 October……. no Prime Minister, no Government, political chaos.
Away from Westminster, the negative respect for the political classes plumbs new depths.
When the referendum result was declared, the best outcome would have been a clear, firm date three years (or even five years) ahead, for which everyone could plan and prepare, leading to the most seamless transition possible. Instead of which the political classes in London, Brussels and Dublin have screwed it up right royally. By their constant bickering and game-playing, we are now in the worst possible situation. It is no wonder that the general public is coming to despise politicians.
Oh, and as for the details of Boris’s Plan, we don’t know. We’re not even sure that he knows……
Parliament has been prorogued! And the important news for word-puzzle fans is that this ‘new’ verb is indeed in the Collins Scrabble Dictionary.
But one has to ask, why did they do it? (I mean Boris, not Collins) And why in such a half-hearted manner? Conference season is coming up, so despite the headline “FIVE WEEK SUSPENSION”, in reality the proroguesion (Nope, that one isn’t a Scrabble word. Anyone got a number for Collins?) only made a few days difference to the actual sitting of Parliament. More importantly, the timing was such that Parliament had time to push through the no-deal bill that was always in prospect, and so the closing of Parliament had no real impact at all.
To us, this high-profile political act was all about Team Boris tweaking Parliament’s tail, and continuing the theme of showing Parliament being against the referendum result and Boris battling manfully to enable what the people chose: Boris and the people versus Parliament if you like.
The two attempts by Boris to provoke a general election should be seen in the same light. The opposition parties saw a trick in that should an election have been called, selection of the date is in Boris’ gift, and hence he could choose a date after Brexit. However, forcing a second vote on the same issue gives the game away. The vote was for public consumption, designed to show the lengths to which Boris will go to deliver Brexit – even risk losing power – and the determination of the other parties to stop it. The subtlety of it being a no-deal Brexit that was stopped will be air-brushed over. This will be shown as Labour being determined to ignore the result of the referendum – and being frightened to face the electorate.
The third piece of evidence, m’lud, is Boris’s stated promise never to request an extension to Article 50, despite the eeyores of this world threatening him with prison. How much of a martyr would that make him? I note with surprise that ex-cons are allowed to stand as MP’s, so even if he was imprisoned, it would not prevent his comeback as a hero.
So, dear reader, you have a choice to make. Do you think that the current administration is ricocheting wildly from one crisis to another? This would not be out of alignment with the public image Boris has cultivated over many years.
Or is this all a careful scheme, planned as the best option to cope with an unfavourable parliament? Boris is setting himself up as the people’s champion, fighting to the death (figuratively rather then literally we hope) to enact the referendum, and being frustrated at every turn by the self-important knuckle-heads in Parliament. Then when the inevitable election comes, Boris emerges with a very strong message. Dominic Cummings is a master at this kind of game…… we see a very Cummings plan Baldrick!
Cripes, doesn’t Boris love poking the hornets’ nest with a sharp stick?
The reality of his decision to close this Parliamentary session and arrange a Queen’s Speech to initiate a new Parliament is relatively small. Instead of Parliament having a recess for three and a half weeks over the party conference season, the break is five weeks. However, it has acted as a lightning rod for all of the pent up frustration and anger of the Remainers. Suddenly, they can see their case is lost. It was lost before, but now they can no longer pretend to themselves that they still have a chance.
So now the Remainers have only one option left – win a vote of No Confidence next week and force an election before the end of October. This would be welcomed by the Boris team, as discussed yesterday, who have developed a suite of policies on which to campaign, and have clearly judged that such a poll would be winnable.
Our view is that;-
The Remainers will not be able to win a vote of No Confidence
It is far from clear that Mr Corbyn will even dare to call one (see 1. above)
The EU will have to sit up and realise that the Remainers will not postpone Brexit
The EU needs to avoid blame for No-Deal, and so see a deal as necessary.
Suddenly, to us, a No-Deal Brexit seems less likely than it did 24 hours ago.
We enjoyed the great mutterings in the press since the weekend about whether the Tories secretly want to have an election BEFORE Brexit day on Halloween.
It appears to have been started by Tim Shipman in the Sunday Times, who suggested that the Government would quite like to have an election on 17 October. However, recognising voter-fatigue, they want Labour to take the hit from the Brenda-of-Bristols who are annoyed at “Not Another One”. The thinking goes that Boris is far ahead in the polls, and so could attend the Euro summit the next day with more power to his elbow, and really give the EU leaders what-for!
The polite word to describe these rumours is bunkum. (The less-polite word also begins with B and has two syllables.) There are two major flaws with the plan. The first is that 18 October is way too close to Brexit day, and so no matter how much power there is at Boris’s elbow (or anywhere else on his anatomy) there just isn’t time for a deal to be pulled together and approved in all the places in which it needs to be passed. Also, two weeks before B-day is just about the worst time to be holding an election – project fear will be in full swing and the media will be full of the impending doom. Boris and his team certainly need to be planning on how to win the peace after B day at that point, but the public may have more pressing matters on their minds.
The Anti-Brexit Forces Are Too Split to Perform
Another week and another proposal from the anti-Brexit brigade. Part of their problem is that they all have agendas so different that they cannot agree on a shared approach.
Last week, it was J Corbyn’s dream of rounding up support to propel him into No 10. That wasted another 7 days of precious time. However, putting Mr Corbyn into No 10 was a suitable objective for only Mr Corbyn.
This week, the rebels seem to have dropped the idea of an early no-confidence motion. So perhaps the Sunday papers’ double bluff about the Tories wanting such a thing was successful after all? The latest plan is to take control of Parliament and pass legislation to force Mr Johnson to extend Brexit. The trouble is, all of the people involved are playing politics, working out whether such a step helps their own person ambitions. However, despite Mr Bercow’s self-belief, the Government controls order papers, and can easily string out any arguments about procedure – perhaps reminding Parliament that they are not in the business of dis-obeying instructions from the electorate.
Meanwhile, Frau Merkel’s sarcastic comment to Boris suggesting he should try to solve the Irish backstop in 30 days (when it hasn’t been closed down in over 30 months) has held open the prospect of a last minute deal, taking away some fire from the stop-No-deal faction of the anti-Brexit rabble.
What Will Happen?
In our view – remember, we are almost as clueless as the next person, depending on who that next person happens to be – Boris has got B-day in the bag for 31 October. It feels like there will be too much egg-on-face for the EU to renegotiate, and so a No-deal Brexit seems the most likely outcome. However, this time there has been ample warning, and so trade will keep flowing, people will continue to travel, and most of the strain will happen behind the scenes. This is kind of the inverse of the fig-leaf Brexit we forecast in the spring, when we thought a net-curtain of a deal would happen to save face. Now it looks like both sides will rush towards No-Deal, for the message that will send to their own electorates, but behind the scenes everything will function!
Oo-er, suddenly the UK economy ain’t looking so good!
The news media are full of speculation about Brexit, and not many of the stories are looking forward to how wonderful the country will be once/if Brexit happens. We can expect more of the same for the next twelve weeks until Halloween.
Are we heading for No-Deal?
At the moment, both sides are digging in, trying to create a tough stance for the benefit of their populations (I hesitate to use the word electors when we are discussing the EU, but you know what I mean). Behind the scenes, it can be assumed that the diplomats and civil servants will see themselves as the grown-ups in the room, and thus be at least looking for common ground.
However, it seems unlikely that a comprehensive new Withdrawal Agreement will be crafted by October. But we can expect enough co-operation to keep the world turning.
So what’s the problem?
The problem is that investment is collapsing. The worst thing for businesses in uncertainty. Life has enough risks when it comes to business investment, without an unseeable future being only 12 weeks away. Similarly, house-buying and car buying are likely to miss out on their usual autumn surges this year.
And after Brexit day, will there suddenly be clarity and light? Nope. There will be hysteria in the media for a few weeks as every little shortage and business malady is blamed on you-know-what. And the effect of this – more hand-sitting and less spending.
What else is happening?
The US is starting to suffer from Mr Trump’s tariffs, to the extent that Jerome Powell has cut interest rates despite full employment. Meanwhile, China is suffering a marked slowdown from the trade war. This has now spread to Europe, which is also teetering on the edge of recession.
The UK is heading for recession – and it is difficult to see when it could end. Domestically, we’ll probably pull out next spring…. but that depends on what the rest of the global economy does. If things keep softening elsewhere, it could be a big one!
PS. The slowdown in Q2 announced today was no surprise, given the stockpiling in Q1 for the original Brexit day, and the factory shutdowns brought forward to April in case of Brexit delays.
PPS. The coming recession will be a direct result of Mrs May’s and Parliament’s timidity over Brexit. If they had gone ahead on 29 March, we’d be pulling out of it by now. The delay to October has just increased the uncertainty and halted the economy for 7 months, tipping us into a recession we need never have had.
What a great start he has made! Mr Johnson has his critics, not to mention his complex private life. But the change of mood since Wednesday has been palpable. It feels like a spring back from the doom, gloom and managed decline of the 1970’s (Mrs May’s dour attitude) to the sunlit uplands of Tony Blair’s Cool Britannia in the 1990’s. For an in-depth review of the new cabinet, we recommend the Politico website.
This is what we see Boris as having done well;-
A wholesale new government, with everyone pulling in the same direction. This is quite a change from the try-to-appease everyone approach of the May administration.
Stamping his authority on the cabinet from Day 1 by standing up to Jeremy Hunt
Putting Michael Gove in charge of No Deal preparations and funding him properly. This is a sign to all that the new Government will take No Deal if a better alternative is not forthcoming.
Surrounding himself by a team of advisers who are known to mean business.
Announcing a raft of other policy initiatives – for example putting money into extra police, focussing on the Northern Powerhouse, and spending on defence. Suddenly, it looks like the Tories have spending plans based on conviction rather than just trying to react to Mr Corbyn’s ideas. This is signalling also that if a General Election comes, the Conservatives have a manifesto in waiting.
Keeping Carrie out of the limelight to avoid distracting headlines.
A bravado performance in Parliament, answering questions assuredly for more than two hours. Boris seemed positive, competent and inspiring. We can only imagine his political opponents were downcast, and several of his doubters in the Conservatives were starting to be won over. Nothing improves one’s political fortunes as much as appearing to be a winner!
Making telephone calls to other World Leaders, but travelling first around the UK to ensure his interest in the provinces can be seen.
We agree with the Team Boris analysis that there can only be one of three outcomes over the next 4 months;
No Deal Brexit
The EU blinks and negotiates
A general election.
Opening deep talks with the US at this stage shows a much more determined approach to negotiating with EU. Brussels clearly has disdain for the choice of the British people, but they will not want the UK moving from the EU’s orbit into that of the Americans. So playing off the two powers against each other is a very smart move. Suddenly, No Deal has a geo-political angle rather than just being a punishment for UK.
Boris has had a great start and now has the political momentum (with a small M!!). He could well prove unstoppable by the time Parliament reconvenes in September if he keeps this going over the summer.
Unlike most of the media, we see Boris’s start as making No Deal less probable, because his strength will more-likely make the EU re-open talks.
In the first of many crucial decisions, Boris will have already decided who will be in his cabinet. With the background of Brexit stress, the usual balance between friends and enemies gains the extra dimension of leavers vs remainers.
Any new PM will be mindful that they want complete control, and so they need a majority of ministers on whom they can rely. However, there is much sense in the old adage about keeping your friends close, and your enemies closer. As our American friends might put it, ‘better to have them inside the tent, p***ing out, than outside the tent p***ing in!’
The press has been full of speculation about who will be doing which jobs by the end of the week. One has to wonder whether most of these speculative suggestions have been planted by the people themselves (or “someone close to them” as the media put it).
So with no special insights or lobbying from the hopefuls, here is what we see;
Michael Gove – heavyweight political thinker, good record of positive change, and under-utilised at DEFRA. Strong leaver credentials were weakened by his support for the May deal. High office awaits. Will BJ be sufficiently forgiving to make him Chancellor in a recreation of the 2016 Dream-Team? We think he might.
David Davis – Good leaver credibility for resigning at Chequers. But his Brexit Secretary role wasn’t very productive. Suitable for leader of the house?
Dominic Raab – arch-leaver, candidate for Brexit Secretary, where he did okay last time, given the hand he was dealt.
Amber Rudd – a remainer, but has a decent relationship with BoJo and could help the left of the party buy into Boris’ One-Nation Tory policies to tempt them from undermining him on Brexit. High office calls for Ms Rudd.
Matt Hancock – A recent convert to Camp-Boris, despite being a strong remainer. Starting to look like his ambition counts for more than his principles. Fodder for a junior ministry.
Penny Mordant – Strong Leaver, good street-credibility, so definitely a ministerial role, could be home-office if she gets lucky
Liz Truss – We like Ms Truss and her old-fashioned Conservative ethos of small-government, competition and low taxes. We’ve see suggestions of Treasury Secretary, which amounts to the Chancellor’s side-kick. In our opinion, Liz deserves more than that, and we’d like to see her at Heath or Education.
Sajid Javid – A great politician, but maybe not the best leadership campaign. We’ve seen ideas about Saj becoming Chancellor, which we can only assume were put about by him! After all, he was very successful in the City, which surely disqualifies him for the role? However, a senior job would work. How about leaving him at the Home Office?
Jeremy Hunt – Ahhhh, the trickiest one of all. He ran a good campaign, but surely cannot win? He does need to be kept on board, but in a role where his questionable Brexit principles cannot do harm – say, how about his current job of Foreign Office, which seems to have been completely cut out of relations with EU? He certainly talked the right talk during the leadership challenge, but walking the walk could be beyond Mr Hunt. Let’s hope that his personal comments about BoJo haven’t poisoned their relationship too much!
So there you have it. Sorry if we’ve overlooked your favourite Tory (if that isn’t an oxymoron). It doesn’t even seem worth commenting about the Remainer Sabs all resigning before their inevitable sackings. No room for quizlings in the new Government!
Later this week we’ll go back to serious Brexit forecasting. Don’t miss the next exciting installment!