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Best laid schemes

NE_2010162

Supremely Pointless  In line with expectations, the Supreme Court has upheld the ruling that Parliament must vote on the issue before invoking Article 50. What does this mean? Substantially, very little.  It feels inconceivable that Parliament will vote against the referendum decision, regardless of MPs personal standpoints, and so the ultimate result is still very likely to support Brexit. It could mean delay. However, a fast track Bill will be introduced this week to commence the ratification process. Given the national importance of the matter, many consider that this is still likely to allow May to keep to her end of Q1 deadline. This may well depend on the potential for the Bill to be amended, and doubtless it will already have been carefully drafted. The biggest unanswered question is on the revocability of the Article 50 notice once served. It seems that Parliament may still be able to unact the decision if a future Government changes its mind, which might keep businesses guessing.

A game of dominos?  Marine le Pen (National Front), Geert Wilders (PVV) and Frauke Petry (Alternative fur Deutschland (AfD)) met with other right wing leaders in Koblenz last week to discuss their vision for the future of the EU. Relatively fringe characters in European politics until recently, the populist backlash has propelled all three into the spotlight in the past 12 months. All favour EU referenda in their countries, with Le Pen describing Brexit as ‘the key factor that is going to set in course all the dominos of Europe’. Wilders heralded: ‘Yesterday a free America, today Koblenz, and tomorrow a new Europe.’ But what are the chances? Fairly slim actually. Ladbrooks places Le Pen’s odds of being elected President as 23% and AfD have only a 16% prospect of success. Wilders is likely to get the most seats in the Netherlands (77% probability), but is unlikely to be able to form the coalition needed to push forward his plans, rendering the prospects of further EU exits remote. However, the problem highlighted by these gains has not gone away and will have a more enduring impact on European politics and economics in the years to come.

Powering ahead  At a Cabinet meeting in Cheshire this week, Theresa May launched her Industrial Strategy, with a clear emphasis on the North, attempting to address criticisms of a London-centric bias. The key messages in her 132-page green paper are around productivity and equality. The two biggest winners in terms of funding were Manchester (£130.1m, including major upgrades to M60) and Liverpool (£72m), whereas more generally, May’s ‘10 pillars’ favour innovation, technology and key infrastructure (spending up by 60%) to drive growth. The latter includes the Northern Powerhouse Rail and Midlands Rail Hub projects, which will allow conurbations to pool labour resources more effectively. As a package, this represents a more interventionist stance than taken by recent Conservative governments, but as noted by (Shadow Business Strategy) Clive Lewis, there still needs to be a lot of flesh put on the bones.

Next-shoring  Two years ago, McKinsey published a report entitled ‘Next-shoring’, which highlighted ‘proximity to demand’ and ‘technological transformations’ as factors which will revolutionise global supply chains. Recent developments might give cause for a second read. With oil prices back on the rise, a fall in the value of sterling, protectionist policies from the US, a rise in the cost of Chinese labour (34% over 3 years), the decreasing cost of robotisation, shorter product life-cycles and the prospect of trade tariffs, UK businesses have cause to reflect on how they structure their supply chains. The pressure is towards speed, vertical integration and simplification, mitigating the increasing supplier risks and transaction costs. The case for onshoring certain forms of manufacturing is hence becoming more compelling, adding value to an industrial sector already benefitting from e-commerce led reorganisations.

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Richard Pickering, Head of UK Research & Insight

Richard Pickering, Head of UK Research & Insight.

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