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All eyes on are on the rising tensions between the United States and Iran after president Trump ordered the assassination of Iran’s most powerful general, Qassem Suleimani.
The oil price has risen, stocks have fallen this morning, and the threat of war almost always depresses global trade flows. But let’s bask in a rare moment of optimism at home here in the UK, where there are signs of a positive outlook for 2020.
There has been talk of economic contraction at the end of last year, but today’s news shows the Purchasing Managers Index showing a 49.3 reading in November 2019. Anything below 50 indicates contraction and means businesspeople with buying power were less confident and therefore planning to spend less.
However, with the uncertainty about what happens next lifted, that index has now risen to 50 on the nose. It’s nothing to get excited about particularly as that does not indicate any surge in business investment, indeed it indicates the definition of ‘stagnation’. But it does at least offer one indication that we’re not about to slide into recession, and given the parlous state of our politics over the last three years, that is probably something of a miracle.
What might offer further succour to the economic position is the passing of the Brexit deadline day. The 31st January was the newly established deadline for Britain to leave the EU, and with his new majority, Boris Johnson managed to pass his Withdrawal Agreement Bill easily, meaning we will definitely leave and enter that implementation period.
It gives 11 months’ grace during which nothing will change in the economy or our trading arrangements, and the threat of any disruption will be deferred to the end of the year by which time we leave the EU properly regardless of whether or not a new free trade agreement has been struck.
Whilst naturally we all want the cliff edges to disappear for good, arguably we have not had a period of 11 months’ pure predictability for several years now, and this will allow business to make some investments and try to move forward.
It will be worth following the news on Iran closely, because a new war with US involvement is likely to have a dampening effect on capital flows and therefore on domestic economies. The price of gold is already at a seven-year high this morning – this is significant because gold is seen as a ‘safe haven’ commodity by investors, and big spikes in gold tend to mean reduced confidence in all the other types of asset classes.
Here’s hoping international diplomatic pressure can get both countries to step back from the brink, and defuse an already hot situation. Our economies need the breathing space.
