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Pre-election blues

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When Theresa May surprised the markets, and us, by calling out the UK’s electorate for a general election with the voting date this coming Thursday, nobody thought that the outcome would result in anything other than a much enhanced Conservative majority with the Labour party probably being decimated. A large Conservative majority would still seem, to us, the most likely outcome even if it does not quite manage the 100 + level that was expected at the outset.
 
Even if a large majority is achieved, it is unlikely that many Conservatives will feel that it has been a successful operation. Perhaps the main focus will be on the performance of the Prime Minister and her remarkable drop in the approval polls. One suspects that the Tories’ basic concept of the campaign was to simply keep comparing the ‘strong and stable’ attributes of Theresa May with the supposedly shambolic Jeremy Corbyn. Given that she was coming straight from the u-turn on the triple lock, the ‘strong and stable’ epithet was possibly questionable anyway, but following a repeat on the dementia tax (and drying up in an interview with Andrew Neil on the subject), it was interesting to note the shift to emphasise the party rather than its leader.
 
As regards strategy, the Conservatives seem not to have learned anything from the referendum, where the Remain camp thought that all they had to do was to hammer away on Project Fear to ensure a majority. Hammering away at Jeremy Corbyn would seem to have been similarly unsuccessful as, while May’s approval rating has dropped, his has improved. Although his policies, particularly economic, may be frightening, and probably unworkable, he has at least made some effort to justify their being fully costed. This compares with the Conservative manifesto which, despite some very non-Tory claptrap about worker representation and improved employment rights, did not bother with very many figures (perhaps given the dementia floor – this was just as well). The message that has been difficult to miss during the campaign is for the Conservatives to provide the electorate with as little information as possible and wait for Corbyn to commit political suicide – which, to date, he has failed to achieve. In fact, now that somebody has provided him with a couple of ties, he is in danger of appearing to be a credible party leader and is now likely to take some shifting post-election.
 
If the election was supposed to be about Brexit, it certainly has not been. Perhaps nobody wants to go back to the low quality level of debate at the time of the Referendum with the awful campaign fought by the Remain camp with some of their ever more extreme dire economic forecasts or the Leave cabal where just outright lies on payments to the EU and pictures of migrating refugees seemed a more straightforward (and ultimately successful) strategy. 
 
In truth, however, nothing about Brexit and how the government will approach the negotiations has emerged. About the best we have as a statement on strategy is that ‘no deal would be better than a bad deal’. When you consider what a ‘no deal’ would mean – which includes a 40% drop in exports to the EU over 10 years and a 3% fall in GDP per capita according to the base case scenario in a report produced by the London School of Economics – one can only be very worried about Theresa May’s negotiating tactics (not helped by her apparent taking the description of being ‘a bloody difficult woman’ as a compliment). The electorate should make it abundantly clear that being tough when it comes to the negotiations is not an excuse for failure. 
 
For UK citizens Brexit has already increased the cost of overseas purchases by around 15% and we now have inflation running at higher levels than annual earnings and the likelihood that gap will increase. Not even those who are solid Leave voters have opined to me that they think the negotiations are likely to reverse the damage that has already been done. Furthermore, there is increasing evidence that some highly qualified EU citizens are starting to move on to more hospitable countries and, in some cases, taking the whole company with them. Not a welcome omen.
 
The markets have been totally committed to a Conservative victory and have paid no heed to the polls showing a remarkable narrowing of the gap between them and Labour. We suspect that the markets are correct if for no other reason than the impetus in the rise in Labour’s popularity comes from the young who are notorious for failing to make it to the polling station. The increase in the Conservative vote, on the other hand, appears to be driven by swallowing UKIP whole (both voters and policies). It has led to an interesting poll that appeared on Newsnight earlier in the campaign that showed that of those whose education was described as either ‘no formal or limited’, 53% intended to vote Conservative, a figure that dropped to a couple of points above 30% amongst those holding a university degree.
 
New economic data is unlikely to get too much attention with the election process in full flow. However, the CIPS Services PMI figures were released this morning. After a 55.8 reading last month and a median forecast of 55, the actual result at 53.8 was not too encouraging evidence of a quick bounce back in quarterly GDP (they were also lower than their EU counterpart). That is it until Friday when the latest trade figures and industrial production figures are released. The trade figures are expected, at long last, to show the positive impact of a lower exchange rate with the median forecast showing a reduction in the deficit from £4.9bn to £3.5bn. The industrial production figures are also expected to be encouraging with manufacturing output up 0.9% and industrial production up a more sedate 0.7%. If correct, these will be rather more encouraging than the CIPS services figures.

All views expressed here are the author’s own and are based on information and data available at the time of writing.

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