We only seem to have come back from summer holidays but it is already nearly the fourth quarter of 2018.
If there are any clear themes emerging for the year, it is the importance of the political situation for the economy. Brexit, the US mid-term elections, China – what the politicians have to say is affecting the pound in your pocket, pension pot and investment portfolio.
Brexit and uncertainty
Brexit has of course been cited as the cause for most events in the UK economy, from the fall of the value of the pound to the boost in the value of UK exports. It has even helped lead to unemployment at a 40-year low of 4%.
But it’s main effect is currently to exercise the politicians on both sides of the house.
Mrs. May is engaged in a war of words with hardliners in her own party who favour a hard Brexit, moderates led by foreign secretary Jeremy Hunt supporting a Canada-style trade deal with the EU, and of course Brussels itself.
The Labour Party conference has just started and there is a call for a second referendum which could see Brexit cancelled altogether.
January is probably the deadline for any agreement to meet the March 2019 deadline, assuming a deal is reached. Time is running out for all concerned.
For the UK economy, the war of words means uncertainty. Investors dislike uncertainty, so the lack of political consensus is keeping investors from putting money into an otherwise healthy UK economy. If we all knew what was happening with Brexit it might help the UK economy might grow at the same pace as that of, for example, Germany. We might all be better off as a result.
America and growing tensions
The problems caused by politics are not confined to the UK. There are currently plenty of events in the US to keep politicians and commentators occupied. There is the Mueller investigation into the Trump 2016 presidential campaign, and the US mid-terms are coming in November, which always increases the intensity of debate.
Meanwhile, tensions are growing around the trade war with China, which has already impacted the financial markets.
The effect has not yet been enough to cut off what seems to be an economic boost from the Trump presidency, but it does mean that some stocks with significant exposure to Chinese markets have fallen significantly. Commodities could start to feel an impact if the trade war escalates.
But look at Japan
It does not have to be this way. Politics can help boost an economy. Shinzo Abe, Japan’s Prime Minister regained his seat in his party’s leadership election earlier this month and Japanese investors are celebrating. He is credited with wakening the moribund Japanese economy, with an ambitious set of reforms known as Abenomics in 2012. Printing money and getting large numbers of women and older people into the workplace set the Yen into growth mode, and today it is booming as never before. His re-election has delighted investors already excited by the nation’s turnaround.
In stark contrast to Mr. Trump, Mr. Abe has put his weight behind green solutions, going so far as to be quoted in the Financial Times as having including a determination to make Japan a hydrogen-based energy society. Given global interest in green technology, his support is likely to be seen as another stage in his personal economic miracle.
If a lack of political consensus is affecting your financial arrangements, it might be time for some expert support. Simply call us at Continuum.
The value of your pensions and investments, and the income from them, can fall as well as rise and you may get back less than you invested.
ft.com – Why investors should cheer Shinzo Abe’s party victory – 20th September 2018
theguardian.com – UK unemployment and employment statistics – September 2018