May wants to appeal to the masses. But is this backtracking on Brexit?
Reports of feverish text exchanges between the Prime Minister and her opposition, calls for her resignation from the Brexit-supporting press and mutinous undertones from Tory backbenchers have been read as signs that the Brexit process itself is in peril. Those who hope/fear that there will be an inevitable row back on the very concept of Brexit will, however, find their concerns misplaced. Theresa May’s intentions to seek cross-party support for publication of the Great Repeal Bill on Thursday is far more sensible than it initially appears. Brexit will be, bar none, the single most extensive legislative process of modern British parliament and getting MPs on side from the very beginning will be critical to prevent snags, hurdles and hiccups further down the line.
While this cross-party accommodation will get a rise out of some of the most staunch pro-Brexit Tory MPs, it’s likely this cooperative approach to Brexit is one of the very few ways in which Brexit can realistically be achieved with the UK escaping in one piece.
Data begins to flash red, but not in downward spiral yet
Last week, PMI data releases from the UK’s manufacturing, services and construction industries all turned south – with inflationary pressures, dwindling output orders and uncertainty clouding the outlook for companies large and small. This, twinned with a widening trade deficit, shows British business is failing to take advantage of the weaker pound and the resulting export opportunities. This mirrors the experience of British business in previous periods of a weaker exchange rate, wherein financial directors were hesitant to cut prices in favour of maintaining swollen profit margins (and thus missing the opportunity to grab market share). While all three PMIs slowed in June, they were still comfortably above the 50 level and indicate that while the UK economy may not be booming, it’s still a while away from recessionary territory.
Earnings seen slowing further
For close to ten consecutive years, the UK jobs picture has been improving. With the unemployment rate at a cyclical low of 4.6%, it seems obvious that wages should be sky-rocketing with the fundamentals beneath the labour market so strong. But this isn’t the case. In fact, wage growth is expected to slow again this Wednesday to just 1.8%, almost a full percentage point slower than consumer price inflation. This should prompt the Bank of England to keep the foot firmly on the accelerator for now, and may add fuel to the argument that it’s still too premature for the Monetary Policy Committee to look at raising rates from all-time lows of 0.25%. Any further weakening in wages will prove more negative for the pound on Wednesday.
Have a great week.