Life has not been a long quiet river for the United Kingdom since the 2016 referendum. At the snap elections of December 12, Prime Minister Boris Johnson wins an overwhelming victory against a divided Labour party over the Brexit issue.
With a popular mandate and strong majority in Parliament, Boris Johnson is in a stronger position than ever to come back to the negotiating table in Brussels. After tough negotiations with its counterparts and especially France’s Macron, the United Kingdom exits the European Union on January 31, 2020, as promised during the campaign. However, everything does not go according to plan. The UK economy starts to show very serious signs of weakness and the risk of a technical recession in 2020 increases sharply as post-Brexit uncertainty remains.
The economy is also penalised by five consecutive quarters of contraction in private investment, a low UK household saving rate, slowing domestic demand and very weak construction and manufacturing sectors. On top of that, there is a growing discontent among the population, particularly among Brexiters, regarding the rise in gross inequalities in the country. In an unprecedented turnaround for the Conservative Party, the government decides to embark on a MMT-based economic policy aimed to restore confidence, stimulate GDP growth and attract investment.
This is the largest fiscal stimulus program in the UK since the end of World War II. It leads to a massive increase in public spending in infrastructure, the health system, education and the implementation of ambitious programmes to support the housing market and provide financial assistance to the most disadvantaged populations. As a result, the public deficit yawns wider to over 6% of GDP.
The Bank of England manages to contain the inflationary effects of this economic policy, and the strong rise in fiscal spending contributes to a jump in consumption and investment which lifts, to everyone’s surprise, post-Brexit Britain’s nominal growth from 3.5% to 8% in 2020. The business community applauds the MMT policy, the FTSE 100 is among the best-performing European indices in 2020, and foreign investors massively come back to the United Kingdom. Brexit is a success.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)