Underinvestment and Zero Growth? What’s wrong with the UK is a lack of honesty…

The CBI think the next decade could be lost as the UK is swamped by stagflation, zero growth and disinvestment, and wonder what the government’s plan is? There isn’t one except to ignore the brutal truth of acknowledging the greatest mistake the UK ever made.

Blain’s Morning Porridge – 5th December 2022: Underinvestment and Zero Growth? What’s wrong with the UK is a lack of honesty…

“The Walrus and the Carpenter walked a mile or so, and all the little oysters stood and waited in a row…”

This Morning: The CBI think the next decade could be lost as the UK is swamped by stagflation, zero growth and disinvestment, and wonder what the government’s plan is? There isn’t one except to ignore the brutal truth of acknowledging the greatest mistake the UK ever made.

What’s to worry about this week?

The signs look good. China’s backdoor easing of Covid restrictions heralding supply normalisation? The strength of the US Labour report pointing to a shallower recession – which still looks nailed on by the inverted yield curve? Inflation easing as energy prices drop (whatever the unintended consequences of the European price cap on Russian oil turn out to be)? The US Fed set to hike once or twice more before “pivoting” to economically supportive neutrality or easing next year?

Sounds good? Mr Market thinks so, and I’ve seen half-dozen calls for the Santa-Rally; a strong December market to take us into the New Year – which, as if I need to remind you, is only 4 weeks away. Next week’s US CPI inflation report will be the one to watch – for confirmation whether inflation is tamed or not.

I don’t have a breeze what’s going to happen next year: my crystal ball is apparently out of warranty…. Markets may go up or they may go down is my current default comment – but I think I’m tending towards an expectation that inflationary pressures will remain longer than expected, but recession will be shallower than expected, and there will be definite value in markets picking the right names. (Things will not be as bad as we fear, but not as good as we hope.) In other words – it will be a selective year, where good stock and bond pickers rather than index followers will be worth listening to.

If there are areas I think potential economic rot will become more apparent, its consumer spending and the housing market. I’ll be keeping a very close eye on home prices, but I think the fears of a complete global housing meltdown are overblown. Each market has its own specifics. Here in the UK there will be pain, but experience shows if prices fall, sellers simply put off their plans and any UK home price crash is reversed within a few years.

But what does worry me is the front page of the FT this morning: CBI warns the UK is about to fall into year-long recession. Aye, the grey clouds of despond are particularly thick, and scudding over this benighted little island at the unfashionable end of Yoorp.

Hardly earth-shattering news the Confederation of British Industry expects stagflation: tumbling growth, inflation and “plummeting” business investment here in the UK. Pretty much every other economic forecasting unit on the planet agrees with them. The CBI think the UK economy will contract, consumer spending will fall, and there are few signs much will, or can be be done about it. Why would anyone invest in the broken UK now..? It’s an obvious question. The CBI expect business investment will be down 9% from 2019 pre-Covid levels.. Its bleak reading.

Bloomberg says the UK faces a lost decade of declining growth and investment. It’s clear something has to change.. But if we aren’t prepared to fess up to our mistakes.. then we won’t solve them.

Cheer up”, pipes up Rishi Sunak, our Prime Minister: “things will be much, much worse in Europe…” which is the common cry of the right-wing, Brexit-cult of the ERG holding him hostage…

At which point, let me change the subject for a moment…

Over the weekend She-who-is-Mrs-Blain, myself, and chums did something we haven’t done since the innocent pre-pandemic year of 2019. On Friday night we drove on board the Brittany Ferries Pont-Aven in Portsmouth harbour. We checked into comfortable cabins with sea views, had a rather splendid and very reasonably priced meal in the restaurant– superb wines. We sailed south, and in the morning were munching croissants in the magnificent walled city of St Malo on the Bretton coast.

We did a quick Christmas shop in Carrefour (my bargain of the day was some fine Bordeaux about half the price of the UK), and picked up epicurean treats for the holidays which might or might not involve chestnuts, ducks and other goodies but are unavailable here. We then drove to the coast at Cancale – a charming beach resort where we did our main thing; tucking into freshly shucked oysters on the harbour wall with too much Muscadet, before a superb 4 course gastronomic lunch of local produce which cost less than €50 a head including simply excellent wines. If it was London it would be £200 a head plus.

We followed with a walk round St Malo – which is superbly decorated and lit for Christmas, the girls doing a quick shop into about a billion exciting unique shops, before driving back on board the same ferry – into the same cabins – and arriving back in Portsmouth on Sunday morning. We then treated a whole bunch of friends to an Oyster Frenzy last night – with fine Loire to wash them down.

What is the difference between France and England?

The French staff on the Ferry, the people in the bar where we had breakfast, the shop assistants, the oyster-shuckers, the waitresses.. in fact everyone we met in France was friendly, happy and delighted to help. The only trouble we had on the whole trip was UK security control in Portsmouth on the way out where there seemed to be a work to rule going on. We had to unload the car, put everything through an airport style scanner, where the bored, grumpy and rude guard spotted a corkscrew – which he threatened to confiscate as a dangerous weapon till my chum pointed out we could probably buy a replacement on board…

The contrast between the UK and France was stark. St Malo was clean, joyous, happy. It smelt of Christmas. The UK… not so much. It stinks of despair.

Europe faces much the same problems as the UK in terms of the enormous challenges from energy prices and energy insecurity. The economies of Europe are highly imperfect. Their state bureaucracies are just as inefficient and bureaucratic as ours. Their unions are in many cases more militant. They face different issues of political competency – can the multiple tribes of the European Union make the Euro work, and sustain it through the coming recession? Just how big a hinderence the size and scope of the Eurocracy that runs the Continent is a topic of constant debate.

Europe is an economy of 460mm consumers. The UK is about 65 million. Go figure. I am absolutely sure Europe has multiple equivalents of Baroness Bra, Michelle Mone, who somehow became a Tory Peer and is embroiled in a chumocracy scandal. Private Eye covers it rather well..

At this point frothing at the mouth Brexiteers will be fulminating about the Euro is doomed, the EU is anti-democratic, and how we got Brexit done or without our own leadership in vaccine provision, we’d all be dead now. Really..?

We need to be honest.

It’s time the UK faces up to reality – and collectively admits what a monumental f8ck-up Brexit has been. We need growth. Not rote. Former Bank of England governor Mark Carney hit the nail on the head when he pointed out the diminishing scale of the UK economy: “In 2016 the UK economy was 90% the size of Germany. Today it is less than 70%.”

The EU was the UK’s premier trading partner. Exports to Europe are down nearly 25%. Apparently 70% of Brits want a closer relationship with Europe. Only 32% of the population now think it was a good idea. It was a leap of faith into the unknown. Well, we are learning. It hasn’t worked. As the facts change, or become apparent as not the ones you hoped for, then for the love of God, do something different.

I voted Brexit – yep – and I admit I was wrong. Sure, we may still get sympathetic trade deals from India (Rishi doing what his billionaire father-in-law Narayana Murthy tells him to do), or be invited to the White House after Macron and the rest have cleared out. The much lauded trade deal with Japan has been a massive success – for Japan. The only positive thing about the Aussie Trade deal was being able to ship Matt Hancock out there for a couple of weeks. The minister who negotiated it (under Lis Truss) now admits “the UK gave away far too much for far too little in return.”

When the UK slips out the G10 and we stop getting invites to the meetings of the great and the good, what the Brexiteers be saying then? At least we have our own sovereignty? You can’t eat Sovereignty. It isn’t a job multiplier.

So why are we still so fixated on Brexit when the UK is so broken, and clearly isn’t benefiting?  Time for a bit of political honesty…. But we won’t get that will the current government remains fixated on itself… Am I the only person who thinks it’s time for change?

Five Things to Read This Morning

FT                    What will Chinese trade data tell us the economy?

WSJ                 Must inflation be brought down all the way to 2%?

BBerg              Watch Leveraged Loans as Canary in Credit Coal Mine, Traders Say

Guardian         Sunak’s Government “going backwards” on green economy, say CBI

Torygraph       “Game Over”: How China used its technotryranny to crush dissent.

Out of time, and back to the day job…

Bill Blain

Strategist – Shard Capital


  1. The Tories have to be reformed, root and branch.

    Several other countries demonstrate that a political party can be reformed, re-energised and made credible. This requires a statesman-like leader who can fight entrenched interests, change party procedures and clean up the mess. Let’s be generous and assume that such a leader emerges and that he/she cleans up the Tories to make them fit for government again. It’s a remote possibility but … it could happen.

    In this scenario the new Tory leader ejects the knuckle-draggers, fools and Euro-sceptics to rebuild a credible and electable party.

    But England then faces an apparently insurmountable problem – the incredible tendency of English voters to defer to, and elect, a representative of the self-selected aristocratic elite who have the right background, the right accent and can quote some dead poet’s 2,000-year-old witty saying. This ill-educated “elite” believe they are born to rule; and English voters tend to agree.

    The problem is representatives of this “elite” all have the same educational and social background. Look at any British crisis since, say, 1890 and you will find this self-selected ill-educated “elite” managing the crisis. The Boer War, WWI, WW2, the Suez Crisis, Brexit etc. A long list.

    It’s a fair bet some ill-educated oik will be chosen to take over the reformed Tory Party, dumping the person who reformed the party and made it electable. Don’t believe me, refresh your memory on Boris coming to power.

    And then it all turns to Shyte. The Pound becomes the Peso and the UK economy declines further; much to the amusement of the Euro block.

    Sadly, potential investors will probably wait a few years to ensure that the above does not happen.

  2. All too true, but as to “voting for Brexit” as the cause of this mess, I would argue that the vote in 2016 wasn’t the issue; we voted to “leave the EU”, which is a political construct, not to turn our backs on our largest trading partner.

    The problem is that too many people then voted Tory in 2017 (and in 2019 but the die was cast by then) and hence we got the ERG version of Brexit with no single market, no customs union, no cross acceptance of standards… so trade has fallen off a cliff.

    Even after the 2017 GE we had opportunities to avoid this mess and remain in the customs union and might even have managed to stay in the EEA, but a handful of people like Kate Hoey took it upon themselves to scupper those chances too. I wonder how history will judge these people when lots of people are starving and homeless in the not too distant future?

    But how are we to do something different?

    Only this morning Keith says that there is no argument for rejoining the single market.

    So short of pitchforks, what are we to do to effect the change required? Answers on a postcard please.

  3. NIce. On the basis that’s it’s always going to be about the economy, and perhaps a useful way of defusing the distracting nonsense about independence referenda and the like in Scotland, we should begin a rapprochement with the EU leading to a return. Actually Rishi might just be the man to say the unsayable – he can’t rescue or boost the economy unless we reintegrate with the common market. Would the UK need to legally call a referendum on the issue? Or could a parliamentary vote suffice? The CP has performed pragmatic U-turns in the past – why not now?

  4. The most dangerous legacy of Brexit was the message it sent to young Brits watching it happen at the time and subsequently: if you want to win and get ahead, achieve your purpose (whatever it might be), forget the old paradigms of study, thoughtful reflection on costs and benefits, knowing stuff. No, you must become a better liar. The denial of Brexit side-effects continues to feed this destructive tendency. And when Starmer inherits the mess, they will do it again. Known in the trade as a mindf***: Happy Sint Nicolas!

  5. “Cheer up”, pipes up Rishi Sunak, our Prime Minister: “things will be much, much worse in Europe…”

    Now that is a sign of weakness. A real Brexiteer does not care about comparing UK against EU right? Just like NL always looks at ‘big bro’ Germany or USA for comparison, the UK is now regarding the EU as the big bro for comparison?

    Oh, and I hate to remind you that UK = Europe, Europe != UK, Europe != EU

  6. I’m home visiting (from the USA) my mother for two week (Norfolk). Norfolk is really depressing. The only people with money are the seniors. I went down to London for two days and it was heaving. I don’t think I have ever seen it that busy. I guess London is a bubble seperate fromt he rest of the country. And I agree with you about the British mindset, its completedly defeated. I can’t wait to get back to America.

  7. Bill,
    You are spot on. Brexit has been a monumental catastrophe for this country. I voted Remain for economic and financial reasons and for the prosperity of our country. I have never been in favour of us joining the single currency. Thanks to more farsighted politicians than the current breed, we had an almost perfect arrangement with Europe in being in the single market but not in Schengen, not in the Euro and not subject to ever closer union. It has all been thrown away to satisfy the egos of certain politicians and single issue charlatans. In short, we have fallen for smooth snake-oil salesmen, pandering to our nostalgic instincts. In this day and age, when the map of the world is no longer painted pink and we cannot enforce our will anywhere, sovereignty is an illusion and a dangerous one at that. We give up a bit of sovereignty each time we sign a trade deal or any sort of deal with a foreign country. Does anyone seriously believe we are better off, short or long term, on our own with limited uneven access to the biggest market in the world which is on our doorstop. Do we have the leaders who have the gumption to say publicly when the facts change, I change my view. I pray that we do, but I fear we do not.
    As ever, Simon

  8. I never could figure out Brexit. The UK had the best deal, it’s own currency (the Euro is the worst part of the EU) and a big trade group. No reason to leave.

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