Philip Hammond took comfort from the latest GDP figures – and well he might. When the chancellor moved into No 11 there was still the possibility that doom-and-gloom forecasts by the International Monetary Fund and even the Treasury itself would come to pass.
That Britain has avoided a recession and, more than that, maintained an annual growth rate of around 2% is a testament to the resilience of an economy that has grown solidly for the last three years and surpassed all other G7 countries this year.
Seeking further reassurance, Hammond need look no further than lobbyists for the manufacturing sector, who say the dip in factory output over the three months to the end of September was temporary and merely reflects a slowdown from a stellar performance earlier in the year. House builders, who almost downed tools in the first half of the year, claim the foundations are in place for a construction boom in 2017.
The building and manufacturing sectors were among the biggest drags on the economy’s recent performance, so these messages could act as a balm on Treasury thinking, encouraging Hammond to think that all he needs to say in next month’s autumn statement is “steady as she goes”.
That would be a mistake. And Hammond’s response shows he thinks so too.
In TV interviews he said there is worse to come next year as the uncertainty grows over what kind of relationship we can secure with the European Union. Yes, the economy is resilient and, yes, the UK has a strong bargaining position. But he was clear it will be a rough ride and the economy will need government support.
The gloomiest economic forecasts earlier in the year were based on Britain filing for a quickie divorce immediately after a leave vote and then becoming trapped in a quagmire of political wrangling.
Hammond is concerned that the UK has merely delayed the date when the battle begins, possibly to next March when article 50 is triggered or when the EU’s response is published. At whichever point, the slugging match between London and Brussels could make the clash between West Ham and Chelsea fans this week look as tame as an afternoon tea dance. It follows that without a string of Treasury initiatives already in place, consumer confidence could evaporate more than it already has and the economy could tank.
However, the suspicion must be that he backs away from making significant gestures. For one thing, six years of austerity have left him with a string of public services crying out for more cash, and not just the NHS.
If he considers it more important to save some services from ruin, it could eat up much of the cash he has reclaimed after ditching George Osborne’s strict deficit reduction plans.
Of course, he could separate investment spending from the day-to-day demands of Whitehall departments, just as Strictly star and former shadow chancellor Ed Balls said he would before the 2015 election. It was an expansive stance that Balls has repeated on the dance floor. That’s not Hammond’s style and probably never will be.
Nissan calls May’s bluff
Nissan has played its hand early and won. It called on Theresa May to show how much she supported manufacturing businesses within weeks of the Brexit vote knowing No10 was still picking a team to navigate the treacherous article 50 talks. The prime minister’s hand was weak.
Was the Japanese carmaker bluffing? What government can afford to find out. Not when a world-beating, export-oriented factory is at stake.
All we know is what Nissan’s chief executive, Carlos Ghosn, has said, which is that the promised support was sufficient for him to sanction building the Qashqai and X-Trail SUV at the Sunderland factory.
So we don’t know very much. Yet the implications of any significant deal appear to be extremely dangerous for the government when it means that May could come under siege from other manufacturers and possibly all exporters in search of compensation for paying EU tariffs once the UK leaves the union.
May might intend to be selective. No 10 could signal that only systemically important businesses need apply. But any tariff subsidies are, on the face of it, in contravention of World Trade Organisation rules. And even if there is a way round the WTO, the EU is hardly likely to welcome “artificially” cheap British goods. Brussels was quick to slap an anti-dumping tariff on Chinese steel. What’s to say it will take a kinder view of British-made cars.
Blank faces greet blank cheques
Barclays has set aside a further £600m to cover claims for mis-selling payment protection insurance (PPI) only a day after Lloyds admitted it needed to find another £1bn for the same reason.
The total PPI costs the industry will have to swallow now exceeds £40bn and can safely be said to rank as the greatest single compensation claim against the banking sector.
What customers will want to know now is whether the regulator can do a better job next time? That task falls to a former Bank of England lifer, Andrew Bailey, who recently took control of the Financial Conduct Authority. This week he asked the public to help him define what the watchdog should do. If PPI tells him anything, it is that he must develop a sensitive nose for scandal.
His predecessors ignored PPI warnings for years, dismissing the idea that banks could possibly sell an insurance product that was hugely over-priced and virtually impossible to claim. Hopefully he will combine his extensive knowledge of the City with a healthy scepticism of its practices.