Written by Anthony Walters, head of policy, ACCA
THIS SUMMER, more than any other, has offered a vivid reminder of the maxim that ‘a week is a long time in politics.’ Yet seven weeks on from the EU referendum result and we are still a long way from understanding the true economic and political impacts of the UK vote to leave. Nonetheless, we have had some early indications of the immediate effects which, combined with underlying problems in the economy which predate the referendum, do not present a sunny outlook. How the government responds to both new and old challenges will not be far from many policy-makers’ minds as they take stock over the summer recess.
Last week’s PMI data has shown a contraction in UK manufacturing and construction. House prices are cooling and the National Institute of Economic and Social Research has said there’s a 50/50 chance of the UK hitting a recession in the next 18 months.
In response to this latest data the Bank of England did what many saw as inevitable since Brexit and cut the interest rate to a record low of 0.25%, while simultaneously releasing a package of economic stimulus. Beyond this the BoE also slashed its growth forecast for 2017 from a robust 2.3% to sobering 0.8%.
Theresa May’s new-look government has already stepped in to provide a taste of how it proposes to get the UK economy back on track. At the heart of this is its new industrial strategy which focuses heavily on the role of devolution. Or to be more exact: a refresh of the long standing plan to develop regional economic hubs, with the Northern Powerhouse as the flagship initiative headed up by a new minister, Andrew Percy.
ACCA firmly welcomes the government’s plans to drive regional growth. But the rhetoric around devolution and the Northern Powerhouse has been echoing around Whitehall for several years now, what we need now is action. Despite the government’s drive behind regional development, some big questions remain unanswered. The absence of a decision on a major airport expansion, for example, adds to the list of uncertainties facing investors.
With ambitions for booming regional economies that are strongly interlinked nationally and internationally the lack of a decision on airport expansion means that we’re missing a key piece of the jigsaw puzzle – and now is not the time to be playing catch-up.
Furthermore, whilst it is vital that the UK seeks to diversify its economic base to compete in the new post-Brexit era, we must ensure that we do all we can to ensure stability for the service sector.
As widely discussed in the build-up to the referendum, service sector industries are likely to be hard-hit as Britain departs the EU. We therefore need government to work with businesses, professional bodies and sector groups to work out what assurances can be provided to stabilise jobs and investment, particularly in the financial services sector, which is a hugely important contributor to UK GDP.
Financial services are a major employer across many major UK cities. We need to do all we can to make sure this sector continues to thrive. ACCA members have called upon the prime minister to ensure that the UK can preserve existing passporting arrangements for the financial services industry. Should firms lose this benefit associated with being a member of the EU then it is likely that there will be an exodus of financial services firms from the UK – not just from London, but from Edinburgh, Manchester and Cardiff also.
As the CBI and others have recently pointed out there is also a skills gap that needs to be addressed as a matter of urgency. The creation of thriving regional and national economies will rely heavily on access to highly skilled people. We’re not there yet and we will only get there if we begin to develop strong talent pipelines that provide the skills needed to drive future growth and productivity. To achieve this we need government to work closely with industry, the professions and learning institutions to create a joined-up strategy that delivers.
Even without the prospect of a Brexit-induced recession, many of these policies were desirable and necessary. Following the referendum we need to see a dynamic, decisive response to implementing them. If the new government can finally deliver then we may yet see some positive signs for the future of growth in the UK beyond the pessimism of recent weeks.