“Our proprietary index of economic uncertainty is within a whisker of the levels reached during the global financial crisis of 2008/09 and the eurozone crisis of 2011, and we do not expect it to retrench until we have greater clarity on the terms with which the UK will be able to withdraw from the EU,” he adds.
“This could be months, if not years, away and uncertainty will weigh on GDP growth and the valuations of UK-focused assets in the meantime.”
Still, with the UK having the second-lowest government debt to GDP ratio in the G7, Smith is encouraged by May’s talk of infrastructure spending and capitalising on what is likely to be negative borrowing costs to invest in future growth.
He says: “There is a wealth of literature to suggest that the fiscal multiplier of infrastructure spending – its effect on total output – is very substantial, especially when higher spending is not offset by tighter monetary policy.
“Ideally, from a growth perspective, infrastructure spending will not be accompanied by higher taxation elsewhere, but her comments this week suggest that this may be too much to hope for.”
With UK politics in such an uncertain state, it is best not to slap any odds on what may or may not happen to the domestic economy under a May government.
