Commenting on UK economic health in light of PMI data and Brexit uncertainty, Artur Baluszynski, Head of Research at Henderson Rowe, said: “In the medium term and if we end up with a no-deal Brexit, the WTO paradise that some hard-line Brexiteers are arguing for, might not materialise. Britain is a service-based economy in which one of the biggest GDP drivers is household consumption. We just can’t see global manufacturing giants rushing to move their factories from Asia and Latin America to the UK just because we are no longer part of the EU and can’t offer flexible trade terms. The process of rebalancing away from over-reliance on the services sector or the City could take decades. It’s a question of skillsets, access to capital and in some cases, geographic proximity to where the actual demand is coming from – not simply low tax rates or trade incentives.
“Another issue is the balance of payments. Despite the pound not being the world’s reserve currency any longer, it is because of London’s status as a global financial centre that the UK currency and its balance sheet still benefits from something called “exorbitant privilege”- the ability to run external deficits for an extended time without serious negative consequences.
“If the UK ends up with a hard left Labour government which tries to undermine London’s status within the global financial system, this exorbitant privilege might very quickly disappear. Any meaningful fiscal stimulus could be very dangerous if the pound and London’s status are being questioned by foreign investors. Whoever is in power – Labour or Conservatives – must keep this in mind.”