The UK is doing fine
The small matter of the productivity problem aside, the UK economy is doing fine, and should carry on being fine.
Regular readers might have noticed that I have been taking some time off. For the last six weeks or so I have barely glanced at the papers – an odd feeling for someone who has read almost all of the UK dailies pretty much every weekday and all the weekend papers (bar a few redtops) every Saturday and Sunday for over 20 years. What have I missed? When I asked this question on Twitter I was told that nothing had changed. Not so. The exciting fact that we have actually (sort of) left the European Union aside, I do see some interesting changes in the conversations going on in the UK at least.
The UK’s productivity problem
The most interesting might be the growing recognition that the UK’s productivity problem (output per hour has barely budged in over a decade) might be connected to, as Alistair Osborne puts it in The Times, the tendency for companies to “hire cheap sackable labour rather than invest in new factories or kit that could produce a leap in productivity”. Our old friend, economist Andrew Smithers, has a book out on the subject, in which he points out that one of the main drivers of this may well be the bonus culture at big firms – if you can get rich by keeping costs down over a three-to-five year period, why indulge in expensive capital investment, particularly if cheap labour is abundant? It’s something the new immigration points system seems to recognise as well: by limiting access to low-cost workers, might it force investment and push up productivity? It’s possible.
The UK economy is doing fine and should keep doing fine – with employment at a record high, real (after-inflation) wages rising nicely, the benefits freeze ending in April, and a strong chance that the new chancellor, Rishi Sunak, will be a bit more “spend spend spend” than his predecessor (see our profile on him in this week's magazine and also our briefing on economic policy), growth is likely to surprise on the upside in the short term. If we do start investing properly, it should do so in the long term too.
Virus-proofing your portfolio
The big new threat to growth (to say nothing of health) on the horizon is of course the coronavirus. I am already being asked how you can virus-proof your portfolio. The answer is that there is no perfect hedge. However, I suspect this might not be the best time to bump up your Asian holdings. If you must buy something at the moment, maybe make it something cheapish and UK-based (Max King gives his thoughts on one of our favourite investment trusts this week).
I’d also point out that, with the “painful reckoning” several Financial Times writers are forecasting increasingly likely, the best safe havens are still the old safe havens. This week, we explain why the Swiss franc always comes on out on top, and relate the story of the gold-laden shipwreck Nuestra Señora del Juncal. However often one might think that diamonds and gold have had their day as stores of value, the fact that Spain and Mexico are prepared to work together to raise the ship from the seabed after 400 years in order to share its cargo of 150 tonnes of them tells you they have not.