Blain’s Morning Porridge – March 7h 2023: Aston Martin and the UK – who are we kidding?
“I’d make a deal with God, and I’d get him to swap our places..”
This morning – Aston Martin’s extraordinary rally on the back of a F1 podium place squeezed out the shorts as fans backed their belief by buying the stock. The reality for the UK is bleaker – the UK budget next week (March 15) will do little to inspire global enthusiasm for the decaying economy. The UK needs something visionary and new!
Spoiler Alert: While I was on the slopes last week I did catch some of Season 13 of Undone – the soap opera drama/tragi-comedy of a divided family unravelling their reputation for competency and stability, committing hate crimes on What’s-App, while plunging the economy towards all-in stagflation. This season’s cliff-hanger finale will crescendo on a local council election wipe-out, full inflationary recession and hero Rishi under the cosh from the pantomimic Boris… Season 14 is in the works….
It’s not all doom’n’gloom of course. The UK economy is apparently about to explode with joy because Aston Martin’s F1 driver Fernando Alonso got an unlikely podium place at the Bahrain Grand Prix on Sunday. The fans loved it, and dug into their ISAs. Alonso’s driving talent added $400mm to the value of the company – not bad.
Netflix’s Formula 1 series Drive to Survive is compelling TV, but seriously whose life is so empty and dull they have two hours to actually watch a Grand Prix? Enough folk care to mean Aston Martin shares soared 22% on the news!
The UK car maker only lost £495mm last year – which one analyst described as “reassuring” (?). I love Aston Martins, and for full disclosure have owned one (wish I still did), but never the stock! It’s almost as daft an investment thesis as Tesla – which remains the number 1 retail investment in the US. That explains why Aston short-sellers had to cover y’day, terrified what a sustained run by the team may do to their positions if more petrol heads decide its a buy!
Unfortunately, Aston Martin is a mere sparkling shard of broken glass amidst the detritus of that is the UK in 2023….
Before you accuse me of left-wing bias – which is what the Tory press call anyone who dares to question the bitter reality of what’s actually going on with the UK economy – let’s lay out what other analysts and banks are saying about the immediate prospects for the UK economy (these are slightly edited for style, but are all from major investment firms):
- The UK has the weakest growth in the developed world, coupled with a major inflation problem.
- The UK is close to stagflation, experiencing a major contraction and entrenched inflation problem stoked by labour shortages.
- UK is at standstill but avoided a technical recession despite deepening industrial strife and growing fears for public services. It’s held together by stronger than expected consumer spending, and easing of energy pressures.
- When a lack of Premiership football in November is blamed for a significant downturn in the economy it hid the reality of a deterioration in activity levels.
- It’s not all bad news – after economic carnage and political uncertainty the average UK business is battle-tested and management are resilient in the face of further challenges.
- The economy is heading for a long, albeit shallow, recession later this year. The toll of rising interest rates, ongoing inflation, and declining consumer savings is still to be felt.
- Wholesale energy costs falling will not necessarily translate into higher consumer spending.
These “quotes” are only immediate snapshots of the economy. All nations rise and fall. That is a historical inevitability.
The problem is the UK economy today is the product of the historical cycle over the past two centuries – the inevitable decay that followed from being the first industrialised nation and the long-term costs of empire. That’s one aspect of the UK’s current problem – but it actually paid a dividend of sorts in terms of the British Empire’s once formidable global industrial and military power morphing into the UK’s mature soft-power in terms of culture in the modern age. (Now the UK’s soft-power looks vulnerable – not just because Harry and Meghan threaten to turn the Coronation into a farce, but because our political stability left the nest some time ago.)
From an economic perspective, the critical flaws in the UK economy are the result of long-term policy mistakes over the last 50 years. These are now deeply ingrained and embedded across the economy.
Martin Wolf covers one aspect of the crisis in the FT: The UK economy has two regional problems, not one. While London has thrived the rest of the economy has sunk without trace. The rich affluent South of the UK sets the tone, while the increasingly poor peripheral failing regions tend to be resentful and more likely to support populist politics like Brexit. Scotland and Wales want independence because they are failing – were they successful growth regions they’d be keen to stay.
Others cite the UK’s hopeless internal bureaucracy and planning policies for failure – although I dispute it’s just about housing. Recently I wrote about how it’s not about homes, but enabling business and growth. Where planning denial or permissions damage the economy should be the key test. Stopping Jeremy Clarkson building a farm cooperative to create 50+ jobs to please some retired hedge fund managers, or tearing the heart out a village to dig a quarry costing over 300 marine jobs, makes zero sense.
The key issue, however, is investment. The numbers show UK productivity has flatlined these last 13 years. There has been a distinct lack of investment into new business and plant. The UK may be the favourite place for Oligarch’s to buy homes, but its no longer an attractive place for foreign corporates to build European plant. In recent months the trend out of the UK has accelerated as investors see the increasing rot. The failure of BritVolt, the erstwhile battery maker, is one aspect – badly planned and managed. The fact firms like BP and Shell say the US makes more sense than Blighty is another. The economy will become sharply insecure as more and more businesses see the UK as irrelevant.
Britain voted for Brexit on the basis we’d be able to take all the decisions on accelerating our economy. While the US plans a massive subsidised investment drive to create climate mitigation industries (through the wooden horse Inflation Reduction Act – a brilliant stroke of industrial policy making), the UK is approaching the looming budget hamstrung by the failure of the last administration, and the need for the current leadership to distance themselves from Boris and Truss. It’s a stupid game to be playing at a time of economic desperation.
The Budget will see a timorous and scared administration attempt to bolster its broken reputation for fiscal policy through what will effectively be an austerity budget. It will try to balance numbers with “hard decisions”, slashing spending while increasing taxes, appealing to the Tory faithful who worship La Thatcher’s housewife economics of the 1970s. Problem is… the long-term consequences of Thatcher’s vision are being felt now in our crumbling, broken London-centric economy.
An austerity budget may win short-term plaudits from the bond and currency markets, but will be an economic disaster for the nation. Defence may get a few more billion to finance Ukraine, but leaving UK armed forces critically under-equipped. Billions will be stuffed into the maw of the NHS, but not into the salaries of deserving nurses. Nothing will be fixed long-term.
The problem is partially leadership. Chancellor Jeremy Hunt is not some titan of industry, a storied banker or accountant. He occupies No 11 as a moderately successful small businessman playing politics. Prime Minister Rishi Sunak is better qualified and apparently runs the show. I admire them both, but! They are fine linear thinkers – they see the problem and will address it in a linear fashion. Unfortunately they will solve little while creating further problematic long term consequences as the UK’s ailing infrastructure, failing transport, dysfunctional education system, defence and security, and social infrastructure continue to crumble from the inside out.
We need a re-set!
I think back to 1997 – the year we thought “Things can only get better.” Few of my City colleagues were enthusiastic about the new Labour government, but under the lateral thinking Tony Blair (let’s not get too misty eyed about him), the UK felt like it was working. Soft Power, Cool Britannia and a new can-do spirit reached its apogee in the London Olympics of 2012 (under Cameron). Where did it all go wrong?
What the UK needs today is lateral thinking – which simply isn’t there at present.
Five Things to Read This Morning
Out of time, and back to the day job…
Strategist – Shard Capital