The 'new normal'

Economic uncertainty… the phrase has become as well-worn as ‘new normal’ from a few years back. Although most of us are able to adapt to a ‘new normal’, adjusting to economic uncertainty presents a different challenge - not least because of our reliance on policymakers to act boldly and in time.

As HSBC’s senior economic adviser, Stephen King (not to be confused with the horror writer), pointed out in May, political expediency tends to ‘trump’ economic necessity. He therefore expects recession-fighting ammunition to remain in short supply, increasing the risk of a major economic contraction. “We will thus continue sailing across the ocean in a ship with a serious shortage of lifeboats.” It is certainly a disturbing image.

Panmure Gordon’s Simon French had this to add: “Too much public discussion has been allowed to focus on the size of government deficits – and too little on the quality of public spending, specifically the returns from public borrowing.” Speaking on the BBC recently, Mr French warned that our current state of economic uncertainty could extend for a decade.

This, of course, brings me to the question of government investment in UK infrastructure and, more specifically, UK industry infrastructure and steel. I am no protectionist, but I do wonder what will happen when we need to build a new frigate (plus a full complement of lifeboats), and are looking to buy a certain grade of steel only supplied by China. As our steel foundries grow cold and their blast furnaces become full of solidified iron, it could transpire that China is not too keen on our foreign policy of the moment - and rather than dumping steel on the UK market - chooses to withhold it.

A fanciful notion perhaps, but an illustration of what the short-termism that has dogged UK politics for too long could result in. Without intervention, we Brits could hand over our steel-making capacity to regions outside our control and possibly outside our influence. What then is going to happen to UK manufacturers who rely on a high-quality product from UK steel mills? According to Stephen Cooper, head of manufacturing at KPMG, companies that are dependent on consistently high quality grade metals could see a “significant impact” on their supply chains.

Certainly short-termism with regards to our infrastructure shows no sign of abating if recent developments in the renewables sector are anything to go by. Government U-turns have forced three (and counting) major renewable energy firms into administration in the past month.

But, returning to China and steel… No matter how well the recent state visit of President Xi Jingping went, the country still has a foot in a communist past when its planned economy had layer upon layer of bureaucracy and was subject to the kind of interference we saw in the recent stock market debacle. A planned economy grinds towards its goals without fear of opposition, so in terms of a market economy, China still has a long way to go. Its leaders don’t sit comfortably with the free flow and occasional free fall of the markets. They may have got away with dumping an overproduction of steel on this occasion, but it is an occasion that won’t and shouldn’t be forgotten - because it could see the end of the UK’s steel industry and its contribution to our economy in the form of exports.

Karl Koehler, chief executive of Tata Steel’s European operations, has already warned that the industry has a crucial role to play in rebalancing the UK economy and pleaded for a fairer system to encourage growth. According to Mr Koehler: “The European Commission needs to do much more to deal with unfairly traded imports – inaction threatens the future of the entire European steel industry.”

Before signing off, I will return to HSBC and the shortage of lifeboats in our current economic uncertainty. The bank has been giving us the willies over renewed threats to decamp, this time to the US. I have some sympathies with HSBC given the bank levy and the fact that the bulk of its earnings are from outside the UK. But a move to the US? Its shareholders should be shuddering.  There are financial regulators, such as our own FCA, and then there is the US Securities and Exchange Commission. The two should not be confused when it comes to penalties handed down - an angry fox versus Tyrannosaurus Rex - and crossing the Atlantic with lifeboats in short supply could be the least of their worries.

While you are pondering the above, I am off to learn how to order noodle soup in Mandarin.