5 September 2019
Lens on the Week
UK
BREXIT: At 6.51 pm on Tuesday, Sir Oliver Letwin, MP for West Dorset moved a procedural motion to open the way for legislation preventing the UK from leaving the EU without an agreement on 31 October. It was carried by majority of 27, rebels including (in addition to Letwin himself) Philip Hammond, Greg Clark, Ken Clarke, David Gauke, Dominic Greave, Justine Greening, Rory Stewart and others.
The rebels have had the whip withdrawn and have been expelled from the parliamentary party and it is understood that the Government will seek to deselect them – presumably they would find it difficult to stand on a leave “do or die”manifesto in any event. As it can no longer rely on their support or that of ex-minister Philip Lee who crossed the floor and joined the Liberal Democrats, the Government no longer has a majority. On Wednesday the bill to prevent a no deal Brexit was passed and the Prime Minister sought a general election on the basis that his negotiating position in Europe had been undermined and that he could no longer govern. As the government did not have the two thirds majority required by the Parliament Act, however, no election has been called. Instead a vote of no confidence is likely to lead to an attempt by Remainers to form a government of national unity.
Lord Doherty, a judge of the Court of Sessions (the Scottish equivalent of the High Court) has rejected a legal challenge on the basis that the Prime Minister is exceeding his powers. An appeal is to be heard by the Inner House of the Court of Sessions (equivalent to England’s Court of Appeal) on Thursday 6 September. Any appeal is to the Supreme Court.
SPENDING PLANS: The Chancellor of the Exchequer has announced spending increases which would add £13.8 billion to government expenditure next year. Represented as “turning the page on austerity” the band of goodies included a £6.2 billion increase for NHS funding next year and a £7.1 billion increase in education funding by 2022/3. There are also promises of increased expenditure on the police, with a 20,000 increase in numbers, just under £500 million for the Department of the Environment and an increase in Social Security spending. It is not clear how these increases fit in with the reduction in the deficit but the generosity of the package can only reinforce the suspicion that it is being prepared with a view to a general election.
EU IMMIGRANTS: The Government has stepped back from its proposals to end free movement immediately on a no deal Brexit. Instead any EU nationals who came here before the end of 2020 will be allowed to remain until the end of 2023.
STENA IMPERO: The Iranian authorities are to release seven members of the crew of the Stena Impero which was seized in the Gulf of Hormuz in July, leaving only those necessary to operate the ship. The Swedish owned but British flagged ship was impounded following the detention of an Iranian tanker by Gibraltar in an operation by the Royal Marines. That tanker has now been released but the Stena Imperio is still being held.
International
GENERAL ELECTION PENDING? The UK isn’t the only country sitting on a general election knife-edge. In Italy last month, Mr Salvini pulled his party – the League – out of the uneasy coalition government with Five Star, hoping to trigger a general election which the League looked likely to win outright at that point. President Matarella, however, thwarted this plan by inviting other parties to form a government; an unlikely prospect at the time, given the hostility between the populist and fiercely anti-establishment Five Star party and the establishment mainstream centre-left Democratic Party. Nevertheless, those two parties are creeping ever closer to an agreement, and this week Five Star supporters voted overwhelmingly in favour of a coalition with the Democrats via an online poll. Meanwhile support for populist Mr Salvini and his hard-right League is falling in the polls and he’s facing an investigation into allegations that his party chased illegal Russian funding last year. In Spain, acting prime minister Pedro Sánchez continues to woo the far-left Podemos party into supporting his minority Socialist government. He has less than three weeks to form a stable government (which would also involve securing the support of regional parties including the Catalan Republican Left independence party) otherwise there will be a general election (the country’s fifth in five years?) on November 10. In Germany, the governing CDU (Christian Democrats) suffered in regional elections in the east German states of Brandenburg and Saxony. The hard-right Alternative for Germany made big gains. The CDU is in a fragile coalition with a wounded SDF (centre-left Social Democrats).
ISRAEL & LEBANON: Israel and Hezbollah exchanged missile fire across the border between Israel and Lebanon, after last week’s death of two Hezbollah militants in an Israeli air-strike near Damascus aimed to pre-empt an Iranian-backed drone attack on Israel. Israeli military vehicles were apparently destroyed and Israeli soldiers injured, though it now seems that this was a decoy target deliberately placed to harmlessly draw Hezbollah fire and that the injuries were staged fakes. Israeli missile strikes against Hezbollah and other Iranian-backed forces in Syria have increased in the last month, and also for the first time in Iraq.
Financial
WELCOME BACK: And in case you missed the vital statistics… One pound Sterling gets you €1.099 (the lowest level ever), or US$1.2 (the lowest recent level). If you have US$1,536 to hand you could buy an ounce of gold, but a mere US$57.3 will buy you a whole barrel of oil. Looks like a UK driving holiday this autumn.
BRICKS AND MORTAR – DOWN: The construction industry has been looking weak for two years or more now, as anybody looking for a job in construction related activities can attest, but now most vital indicators are pointing firmly downwards. New building starts are slowing; planning applications, especially in the commercial sectors are slowing; housing sales are slow and incentives to buy increasing (though mortgage applications are up); commercial lettings are slowing, especially in the pre-used sector; and the price of some building materials is coming down – though not all. Maybe time to think about building that extension to your house. Building has had a very long boom, since 2011, and in such a cyclical business it is not surprising that things are moving into a downswing. But large projects from government are also slowing down – the rumoured 5 year delay in HS2 will be a significant factor on its own – and the industry is bracing itself for a recession this winter and onwards.
BRICKS AND MORTAR – UP: But let’s not be so gloomy. In one sector sales of bricks are rising and likely to go up more in the next couple of years. Lego, the Danish maker of those endlessly fascinating plastic brick kits is expanding, opening still further shops in China, and will enter the Indian market for the first time this year, which it sees as ripe for expansion. This year it expects to see the number of retail outlets it operates rise from 340 to around 500. Lego went through bad times in the last recession but in more recent years sales revenues have been strong and rising, 5% up in the first half of 2019. The big boost has been greater family wealth causing expansion of children’s play activities in Far Eastern markets, and with attention to fashions and themes drawn from successful franchises such as Star Wars, also linking in to Lego’s own movies, which bring valuable spin offs in the plastic stuff. The rapid expansion has not translated into distributable profits yet, because cash flow is being poured into expansion. As a family owned business still, Lego can take that option.
YER BORROWS YER MONEY…: Differing views of the housing market among lenders and commentators. HSBC is feeling positive, expanding its activities in the UK mortgage market, intending to double the proportion of its UK lending book in UK domestic mortgages over the next few years – that is another £35bn or so for borrowers. To achieve that it is pushing lending rates down, bad news for the competition, good for home owners, bad for savers. And maybe bad for Tesco – it has just announced the sale of its mortgage book of £3.8bn to market leader Halifax Lloyds. It’s a small business comparatively with 23,000 customers and making just £9m of profit last year. Not really worth Tesco’s trouble – and maybe Tesco can see something HSBC can’t. Or at least it does not have a business in Hong Kong that it might be prudent to diversify rapidly away from. But perhaps the big lenders are both wrong – accountants KPMG say house prices might fall 20% in the event of a no-deal Brexit. Might. And the sky might fall.
