May Tells U.K. Conservatives End of Austerity Is in Sight
Comment of the Day

October 03 2018

Commentary by Eoin Treacy

May Tells U.K. Conservatives End of Austerity Is in Sight

This article by Jessica Shankleman for Bloomberg may be of interest to subscribers. Here is a section:

“A decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off,” May told the Conservative Party conference in her keynote speech in Birmingham Wednesday.

Chancellor of the Exchequer Philip Hammond has faced months of calls to end the squeeze after a backlash cost the Conservatives their parliamentary majority last year. The government has already relaxed a 1 percent cap on pay increases in place since 2010 and promised extra funding for the National Health Service, a response to the electoral threat from the opposition Labour Party led by socialist Jeremy Corbyn, who has pledged to increase spending.

Eoin Treacy's view

The biggest question for establishment politicians is how to blunt the rising tide of populism. Social democracy has prospered for decades not least because workers have been compensated with social services following the loss of manufacturing and heavy industry jobs.

The decade-long austerity that followed the credit crisis highlighted for many people just how paltry that compensation is when the money runs out. The only way to allay the concerns of large proportions of the population that their standards of living are going to stop deteriorating is to boost spending and embrace automation so higher value manufacturing can be attracted. In short, give the people what they want, which is invariably more money. 

The UK looks to be on the cusp of following the USA into a fiscal stimulus and it is likely to have the same effect on the economy, not least because of low unemployment. The Pound continues to rebound against the Euro, having posted a higher reaction low at the end of September and a sustained move below €1.11 would be required to question medium-term scope for continued upside.

The FTSE-250 tested the 20,000 level in September and will need to hold that area during the current pullback if the consistency of the medium-term uptrend is to continue to be given the benefit of the doubt.

The much broader issue is whether the EU will be convinced that fiscal stimulus is the way to break the domestic economies of a majority of members out of their funk. The obstacle of moral hazard of Germany funding a spending spree on the periphery might appear a major obstacle but it is a small price to pay to avoid the dissolution of the bloc.

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