7 key economic factors for 2020
A new year, and indeed a new decade has dawned. Reflecting on 2019, what seemed to have got lost in the noise and political hysteria was the fact that the UK economy actually held up remarkably well.
Despite unrelenting logjam and uncertainty, growth is still expected to have come in at 1 per cent or more. The jobs miracle continues, with the unemployment rate nearing record lows at 3.8 per cent. The FTSE 100 soared 12 per cent, and asset prices surged across the board. We also enjoyed a year of fuller pockets, with real wages rising steadily.
Given that a few clouds have now cleared too, there are quiet murmurs of optimism among commentators about the year ahead. So, what does 2020 have in store for Britain’s economy? What will impact our performance? And what will be the key indicators of success? We’ve highlighted seven things to look out for below...
A resounding Conservative majority will ensure that Britain leaves the European Union in an orderly fashion at the end of the month. Of course, the shape of our future trading terms with the Continent is yet to be determined, and the Prime Minister has dialled up the pressure by ruling out an extension to the so-called implementation period. Hammering out a favourable trade deal, and establishing certainty at the earliest possible juncture must be the absolute priority. For beleaguered businesses who’ve had to plan for the future in the face of constant political acrimony, it is the least they deserve, and crucial if the UK is to enjoy a prosperous year.
Britain’s productivity problem will need more than 12 months to solve. In the 2010s, we’ve consistently ranked near the bottom of these tables among developed nations, and it is high time the direction of travel is changed. We need to use our workers more effectively and efficiently, and invest in human capital. But equally, investment in infrastructure, R&D and technologies will underpin any uptick in productivity. At Government level, this means targeted spending, incentivising investment and working closely with business and industry experts to formulate robust, all-encompassing strategies and programmes to turn the productivity ship around.
Hostilities in the US-China trade war appear to be easing, with the agreement of a ‘phase one’ deal set to be ratified next week. In an election year for the American president, the expectation is that this positive momentum will continue, thus paving the way for a rebound in global growth. That said, the Iran crisis is a stark reminder of how quickly the political weather can change, and the UK economy is as exposed as any to an oil price shock as instability in the Middle East intensifies.
On 16 March, Mark Carney’s reign as Governor of the Bank of England will come to an end, with FCA chief executive Andrew Bailey poised to take charge. Economists will be watching closely to see what impact his arrival has on the mood music surrounding interest rates. At present, markets are tentatively pricing in a rate cut for May, with two doves on the Monetary Policy Committee (MPC) having voted for one back in December. However, if the economy begins to pick up as a result of greater political certainty, backed by an increase in fiscal expenditure, then the argument for monetary stimulus becomes a lot weaker. In fact, this deep into the economic cycle, the MPC should surely be snapping up the chance to edge borrowing costs away from their current all-time lows. Any movement in rates during 2020 will thus be a good barometer of our overall economic health.
Having fallen steadily since 2012, the deficit shot up unexpectedly last year, with borrowing for 2019/20 having already surpassed £50bn. This apparent deterioration in the public finances is partly due to a change in the way student loans are written, but also the rising costs of day-to-day public spending. At a time when tax revenues and employment levels are at record highs, this is particularly concerning. Now should be a time to fix the proverbial roof, but instead the national debt continues to balloon. Spending pledges promised during the recent Election campaign may be popular with an austerity-weary public, but fiscal responsibility must not become a casualty as a result.
Employment and wages
It really has been one of the ‘good news‘ stories of recent times, and 2019 was another fine year for the jobs market, with 32.8m Brits aged 16 or over currently employed. That represents a year-on-year increase for both men and women, and in the number of full-time jobs being created too. And although earnings growth slowed somewhat at the back end of Q4, real wage growth remains robust at roughly 1.5 per cent. So, can this run continue? Economists predict a modest increase in unemployment in 2020, but with some 724,000 job vacancies, and firms consistently demonstrating a willing to take on more staff, it promises to be another stellar year for the labour market.
Innovation and tech
A recent KPMG report marked Britain as the third-most dynamic global centre for innovation, disruption and technological development (behind China and the US). Certainly, we’re leading the pack from a European perspective, and in many sub-sectors such as fintech, we’re unsurpassed on the global stage. However, in such a fast-paced world, we cannot afford to rest on our laurels, and one of the key roads to navigate will be harnessing the capabilities of artificial intelligence (AI). According to an index published by Oxford Insights, Singapore is the only country to rank higher than the UK in terms of AI readiness. It is crucial that Government seizes this opportunity, invests adequately, and ensures that we remain a magnet for the best global talent in these various fields. A golden era in the tech age beckons for our country, and 2020 can be the year in which we make our mark.
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