ALEX BRUMMER: UK may quarantine itself from coronavirus, but cannot avoid economic consequences


ALEX BRUMMER: UK may be able to quarantine itself from medical fallout from coronavirus emergency, but cannot avoid impact by economic consequences

Britain is thinking big and global as we exit the European Union. I am no fan of China’s economic imperialism or BT’s skill at building out telecoms infrastructure.

But the decision to give Huawei a role in 5G ends uncertainty and gives the UK the opportunity to get the job done.

It is also a reminder that business and consumers need not just 5G but Korean-style ultra-fast broadband too.

Taking precautions: Coronavirus is spreading at a rate six times faster than Sars

Taking precautions: Coronavirus is spreading at a rate six times faster than Sars

The final decision on the HS2 high-speed rail between London and the North is awaited. But with Chancellor Sajid Javid on side it looks set to be kept on track.

Each time someone claims that January 31 and the lowering of the EU flag doesn’t mean we have left Brussels behind, I despair.

A settlement with Europe will be agreed by year end, whether it is a bare bones series of intentions, a Canada-style trade deal or something else.

It will not be acceptable if 2020 becomes another year of infighting and damaging delays. That would consign the Boris bounce – looking very real in the housing market – to the dustbin. Business investment in the UK fell way down the OECD league in the post-referendum period. Unlocking the £750 billion of cash on corporate balance sheets is critical to kick start output. It is even more crucial now that the Bank of England has lowered forecasts for Britain’s productivity.

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Being part of the European Union meant that the UK was less exposed to global economic conditions than before 1973.

It has not been an enormous advantage since the Grexit threat and euro crisis of 2010 led euroland to stagnate.

Britain, as an open economy with the largest financial sector outside the US, can never isolate itself from global conditions.

I can remember how chagrined Gordon Brown was in 1997 when the Asian crisis required him to dramatically lower the UK’s growth rate. The UK may be able to quarantine itself from the medical fallout from the coronavirus emergency, but cannot avoid impact by the economic consequences. Hong Kong academics (quoted by the Economist) say that the epidemic may not peak for several months. That is quite frightening. In 2003 during the Sars outbreak, China accounted for just 4.3 per cent of global output, a figure which has zipped up to 16.9 per cent.

Coronavirus is spreading at a rate six times faster than Sars, leading forecaster Cebr to suggest it could hit world GDP by between 1.8 per cent to 6 per cent, which would signal a global recession.

Even if one dismisses worst-case outcomes, the threat underlines the need for fiscal and monetary boldness to offset the slowdown.

The Chancellor has given himself more room to manoeuvre by easing the fiscal rules. By holding bank rate at 0.75 per cent in January the Bank of England left itself space to act decisively should the global economy lurch downwards.

Broken Hill

If I didn’t know better, I would say that Hargreaves Lansdown chose Brexit day to bury bad news.

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The reputation of the immensely profitable dealing platform has been badly holed by the Woodford scandal. New business has declined, but revenues at £258m and profits at £171m are sharply up. That is not good optics for one-quarter of HL clients exposed to catastrophic losses as a result of following recommendations on HL’s poorly monitored Wealth 50 list.

HL boss Chris Hill described the Woodford affair as ‘disappointing and frustrating’. Clients will regard that as crocodile tears.

In effect the broker has accepted a degree of culpability by the promise to tighten up oversight of the Wealth 50 list and to ‘follow a more independent path’.

The chunky 8 per cent-plus fall in HL’s shares may be just the start. Asset manager Cavendish warns there could still be a big Financial Conduct Authority (FCA) fine and a class action lawsuit from shareholders to come.

Bad advert

The speed of process at the FCA is never scary. But it is never a feather in the cap to be under investigation.

M&C Saatchi’s shares plunged following disclosure that the FCA would be looking at forensic findings of overstated profits.

Not a great outcome for chairman Jeremy Sinclair and chief executive David Kershaw who are seeking to rebuild after the shock departure of co-founder Maurice Saatchi and a cadre of independent directors.

Experienced as he is, new deputy chairman Gareth Davis will have his work cut out.

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