Reflecting on a turbulent past

Not only is the last day of the year but it is also the end of a long and troubled decade and as usual at this time of year I want to spend a little time looking back. Looking first at 2019, how did I do in terms of my big calls?

2019 in review

In terms of the economics, I did broadly OK, arguing at the start of the year that “it is unlikely that we will see recessions in any of the world’s major economies this year.” That said, it was a bit touch-and-go in Germany for a while and the euro zone economy slowed by more than I anticipated, largely because the US-China trade dispute caused more damage to Europe than expected. Indeed, the global economy felt a bit softer than we had hoped, partly due to trade issues but perhaps because the economic expansion in place for the last decade is long in the tooth.

Whilst I was overly optimistic on the economy, I vastly underestimated the markets’ capacity to defy gravity. We have seen double digit rates of return across the equity space, with key US markets up by more than 25% year-to-date although over a two-year horizon, the gain is only around 20% (chart). I could kick myself for missing out on that opportunity but I’d probably miss! Monetary policy was the driving force here, with Fed rate cuts that were not foreseen at the start of the year giving markets a shot in the arm. Although I hold to my view that equity markets are overvalued, increasingly we cannot look at individual asset markets in isolation. Investors continue to pile into equities because the alternatives are dire. When large parts of the fixed income universe are yielding negative returns, there is every incentive to chase the higher dividend yields generated by equities – not to mention the prospect of a decent capital gain.

As for politics, I was right in predicting that the UK would not leave the EU without a deal, but that was a long and tortuous process that nobody wants to repeat. But I was wrong in suggesting that “impeachment proceedings will not be initiated against Trump”. Clearly the Democrats believe that the political calculus has changed and that it is worth their while to follow through, even though their chances of removing President Trump from office appear slim. And finally in terms of my 2019 predictions, I did not see the emergence of Christine Lagarde as ECB President, but I was glad to see that the BoE did indeed “look no further than FCA Chief Executive Andrew Bailey” in finding a successor to Mark Carney.

The 2010s in context

This being the last day of the decade, it is worthwhile examining how far we have travelled in the past 10 years. At the end of 2009 we were coming off the back of the biggest peacetime economic collapse in 80 years. The outlook for the year ahead was not especially bright but the general belief was that within a few years growth would recover to pre-crisis trends and that monetary policy would slowly normalise. Neither of these things has happened in Europe.

Although European politicians are reluctant to admit it, we are experiencing a form of Japanification. One of the defining features of the post-bubble Japanese economy was that the slowdown in population growth occurred at the same time as policy makers were struggling to cope with the after-effects of the bubble. This meant that they did not notice the slowdown in trend growth until it was too late. In Europe, baby boomers have retired in droves over the past decade, with the result that the contribution to potential growth from labour has diminished and in the absence of a boost from capital investment, European potential growth is now much slower than before the financial crisis.

However, this does not justify holding interest rates near zero for so long (let alone in negative territory as the ECB has done). I maintain, as I have done for a long time, that the costs of this policy will ultimately outweigh the benefits (if they haven't already). Over the next decade, we will feel the costs in terms of our nugatory pensions. And I continue to wonder whether part of the reason for weak investment activity is because low interest rates mean low rates of financial return.

But the biggest change over the past decade has been in the political field. Nationalism is the order of the day in many parts of the world and finds its most obvious expression in the form of Trump and Brexit but it is bubbling away across Europe and Asia. A decade ago, Barack Obama was the cool president for a new America but in less than a decade he was replaced by an angry populist with plenty to say but no clear policy ideas. Similarly, Grexit was starting to rise up the worry list a decade ago but it is the UK which is about to leave the EU.

As I have noted before, both these issues reflect the failure of centrist politics. Politicians overpromised and under-delivered in the wake of the crash but electorates now want leaders who will take action rather than offering jam to tomorrow. Unfortunately the issues we face are more complex than politicians are prepared to admit in public. Demographics are changing the face of European economies and will force politicians to take some hard choices when it comes to allocating resources. The rise of China has also changed the political calculus in the US and Europe and will continue to shape world events in the 2020s.

If you have read this far, however, thanks for sticking with it and congratulations on surviving another year - indeed another decade. I wish you all a peaceful and prosperous New Year.

Forecasting the UK economy. How did we do in 2019?

David Smith is one of the UK’s top economic journalists and his pieces for The Times and Sunday Times are always worth a read. Since the 1990s Smith has devoted his final column of the year to an assessment of how those who provide forecasts for the UK economy have fared over the past year and 2019 was no exception (here for the full article if you can get past the paywall. Otherwise here). The good news is that most forecasters did pretty well, though if anything they were too optimistic on GDP growth and the extent to which the BoE would hike rates.

Digging into the details, Smith’s methodology is based on an assessment of five indicators – GDP growth, Q4 CPI inflation, current account, unemployment rate and Bank Rate. Using the projection provided by each forecasting group to HM Treasury’s compendium of economic forecasts in the previous January, he provides a scoring system to rank how each group fared. The first caveat is that we do not yet have a full year of data for any of the items except Bank Rate so the rankings may be subject to change once the data for the remainder of the year are released. But I have always had a bigger issue with the somewhat subjective way in which points are allocated (see footnote of Table 1 for details). Moreover, there is a bias towards the growth and inflation forecasts, each yielding a possible maximum of three points whereas only one point is awarded to each of the unemployment rate, current account and interest rate forecasts. And there is always a bonus question designed to ensure that the theoretical maximum number of points sums to 10.

In my view, the trouble with this ranking is that it does not sufficiently penalise those who get one of the forecast components badly wrong – the worst that can happen is that they get zero points. Moreover, since the competition is designed to look at all five components, my system imposes a bigger handicap on those who do not provide a forecast for all of the components (which may be a little harsh, as I discuss below). My ranking system thus uses the same raw data and assumes the same outturn as Smith but measures the results differently and (I hope) reduces the degree of arbitrariness in allocating points. For growth, inflation and the unemployment rate, I measure the absolute difference of each forecast from the outturn (in percentage points). Assuming the same outturns as Smith, GDP growth in 2019 came in at 1.3%; the Q4 inflation rate at 1.5% and the unemployment rate at 3.8%. Thus a GDP growth forecast of 1.5% is assigned an error value of 0.2 (=> ABS(1.3-1.5)); an inflation forecast of 2% results in a value of 0.5 (=>ABS(1.5-2)) and an unemployment forecast of 4% produces a value of 0.2 (=>ABS(3.8-4)).

For quantities such as Bank Rate and the current account, I apply different criteria. Interest rates normally change in steps of 25 basis points so the forecast error is measured as the error in the number of interest rate moves (again the sign of the error is irrelevant). For example, if the forecast in January was for Bank Rate to rise to 1% but it in fact remained at 0.75%, the error value is one (=> ABS(0.75-1)/0.25). With regard to the current account deficit, measured in billions of pounds, I assume forecast errors proportional to each £10bn absolute error (i.e. independent of sign). The outturn is assumed to be minus £90bn, so a group whose January forecast looked for a deficit of £85bn is assigned a value of 0.5 (=> ABS(-85+90)/10).

Having summed up all the error points, I then subtract the number from 10 to derive a value in the range 0 to 10 (the figure can technically go negative, in which case I assume a lower value of zero). However, the astute amongst you may already have spotted that the units involved in the current account forecast are big, so that failure to provide a forecast will become a problem. Indeed, those not providing a forecast are assumed to have input a value of zero, giving them an error value of 9 points (=>ABS(0+90)/10). This becomes a problem for the likes of HSBC, which finishes second in Smith’s rankings but drop way down on the basis of the methodology outlined here, but also Daiwa and Bank of America. This is unduly harsh and we need a better way to take account of zero forecast entries whilst still putting them at a disadvantage compared to those groups who provided an input. One option is simply to assign an error of two points for each missing forecast, on the basis that a group which fails to provide any input for each of the five categories would score zero (10 - 5 x 2).

Having made this correction, we are in a position to look at our revised rankings. Whereas in Smith’s original article, the Santander team came out on top, my rankings give the accolade to Barclays Capital largely because Santander’s current account forecast cost them two points whereas the Barclays team lost only 0.75 points. Honourable mentions also go to Oxford Economics and the EY ITEM team. Who lost out? One of the big losers is Schroders Investment Management, which appear near the top of Smith’s rankings but the fact that they predicted four interest rate hikes when there were no changes, cost them four points. This strikes me as fair. Interest rate projections are a key component of any macro forecast so it is only right that teams get penalised for bigger errors. HSBC slip from second to eighth on the basis that they did not provide a forecast for the current account, which is unfortunate but if it is included in the assessment criteria we have to take account of this. Had the current account been excluded, Santander and HSBC would have held onto their top two places. The revised rankings also put the pro-Brexit Liverpool Macro Research group at the bottom after a poor performance last year.

As for my own performance, I must confess that I did rather better than in Smith’s original ranking, rising to fourth (last year, this methodology would have put me second). I am not going to claim that there is no element of self-justification in the rankings but I have always thought that there was a better way of using the data to derive an ordinal ranking scale over the interval 0 to 10. But perhaps a more important lesson to come out of the analysis is that for all the criticisms of economic forecasting, those involved in making projections are to be congratulated for putting themselves on the line and being prepared to show their errors in public (equity and FX strategists take note). 

Moreover, despite criticisms from the likes of Eurosceptic MP Steve Baker who once said in the House of Commons that “I’m not able to name an accurate forecast. They are always wrong”, we have done pretty well in the UK over the past 2-3 years. And whilst, like football managers, forecasters are only as good as their last projection, I will wager that growth in the UK next year will continue to underperform relative to pre-referendum rates, whether or not Brexit is “done”.  

Cards and other Christmas traditions

Whilst you enjoy a well-earned rest in the company of your family and look forward to your Christmas dinner, spare a thought for those who have to work over the festive season. According to the TUC, more than one million British workers will be giving up their time over the holiday season – around 3.4% of those in employment. For those in the caring sector it’s just another day with nursing staff and doctors having to work over the festive period as illness knows no seasonal bounds. Indeed, I have good reason to be thankful for their efforts as I was forced to take an elderly relative to hospital one Christmas Eve. It is also a busy day for the clergy with the TUC estimating that there will be around 25k working tomorrow – as many as are employed providing care for the elderly.

But whilst Britain appears to shut down over the holiday season, it is worthwhile recalling that it did not used to be this way. Whilst Dickensian Christmas themes have become a seasonal staple, the poor working man did not get much time off over the festive period in Dickens’ day. Although Christmas Day was inaugurated as a bank holiday in 1834, Boxing Day only became a public holiday in 1871 – a year after Dickens died. But the passage of the Bank Holiday Act of 1871 meant that workers were now entitled to six whole days of holiday per year – many people will be taking more than that amount of time this Christmas alone.

Another of the great Christmas traditions dating back to Dickens' time is the widespread exchange of cards (see chart for more facts and figures).  Apparently, we send enough cards that if we placed them alongside each other they would cover the world’s circumference 500 times, which is an awful lot of paper. As one academic article put it “Every year, the British public celebrates Jesus's birthday by cutting down eight million trees, wrapping enough presents to smother Guernsey, binning billions of greetings cards, and then throwing away £1bn worth of food.” Whilst this sounds somewhat Scrooge-like, there is a serious point to be made here that the average UK household raises its monthly spending by almost one-third in December on things we may or may not want.

Many of the cards we send will be decorated with traditional winter themes but ironically it does not snow very often in Britain around the Christmas period. That said, winters tended to be much colder in the nineteenth century than they are today and this historical echo goes a long way towards explaining why winter themes dominate our cards. In fact, there is more chance of snow between January and March than there is in December, and the change to the Gregorian calendar in 1752 effectively pushed Christmas day back by 12 days thus further reducing the chance of snow on the big day. Moreover, the evidence does suggest that northern hemisphere winters are getting warmer. Climate change, which makes the northern European climate warmer and wetter, is likely to further reduce the chances of snow on 25 December. To the extent that environmental considerations are increasingly impacting on the choices people make, it is likely that in future we will celebrate Christmas differently compared with today.

One of the longer standing Christmas traditions is to look back to the past and argue that it always used to be better. As The Scotsman newspaper reported at Christmas 1900, “The seasons seem to have undergone so much change of late that orthodox Christmas weather, with its associations of frost and snow, and its exhilarating atmosphere, would appear to be almost a thing of the past.” Much as I fear the effect of global warming, somehow I don’t miss all that frost and snow. Merry Christmas to you and yours.

Not so much a poverty problem but a benefits problem

The context

This is a true story. Some years ago a Polish builder working in the UK suffered an accident at work in which his right hand was severely injured. Although he is perfectly capable of working with his left hand, prospective employers took one look at his injury and determined that he was unfit for work. Deprived of his ability to make a living, the man quickly burned through his savings, and came to rely on the £72 per week provided by Employment and Support Allowance (ESA). Not surprisingly he was unable to continue to pay for his accommodation and was soon reduced to living in a shed.

Last week, our builder showed up at a job centre in a well-to-do part of southern England to try and get some help with his circumstances. After having told his story, the first question he was asked by the officer dealing with his case was whether he had any health issues. Assuming that the question referred to supplementary issues other than his hand, he replied that he suffered from anaemia. The officer was about to press the enter button on the keyboard to finalise the data entry when another official who was observing the interview reminded them that the man had a serious hand injury.

It was then explained to our builder that he was eligible for housing benefit. Wonderful – some help at last. Except that in the Kafkaesque system employed in the UK, the recipient first has to find a place to live and only then are they entitled to support. Due to the shortage of social housing, those seeking somewhere to live are forced to rely on the private rental sector. Assuming you can find someone willing to rent their property, the landlord will ask for a deposit of 2-3 months’ rent. If you are living in a shed and surviving on £72 per week, the chances of saving up around £1,000 for a deposit are slim to none. To recap, this is a skilled workman who paid his taxes whilst he was working and by an unfortunate sequence of circumstances found himself living in a shed, in the middle of winter in what prides itself as being a rich civilised country. Furthermore, he cannot claim his housing benefit because he has nowhere to live.

I must admit to being shocked by this story and it is an eye-opener to realise that people are living in such circumstances in a so-called rich economy in the 21^st century. It would be easy at this point to say that Jeremy Corbyn was right after all, and that the electorate has mistakenly given a mandate to a Conservative government which is putting increased pressure on the poor. But I am not sure that this is the whole story.

The problem 

On a long-term basis, the evidence suggests that there was a sharp rise in relative poverty, but it occurred in the second half of the 1980s, during the second and third term Thatcher governments (as measured on an income basis, see p18 of this House of Commons Briefing Paper). It has been exacerbated by a sharp rise in housing costs, which means that income after housing costs has not recovered to the same extent as before-housing cost income where relative poverty levels have fallen moderately since the 1990s. The Social Metrics Commission, an independent group of experts which is working to understand and measure poverty in the UK, reckons that the proportion of people living in poverty (which takes into account factors such as income and housing costs) has fallen slightly since the middle of the last decade (chart) with a larger decline for pensioners than for other groups. Overall numbers have gone up, of course, but more slowly than growth in the total population.

I do not wish to suggest that poverty is not a problem, because it clearly is for a lot of people. But a far bigger problem appears to be issues with the benefit system itself. In summer 2018 the National Audit Office released a damning report on the rollout of Universal Credit (UC). UC was introduced in 2012 and was intended to simplify the benefits system by combining six benefits into one and to raise work incentives by promoting a system of benefit-tapering as people moved into work rather than ending state support altogether. However, as the NAO pointed out, the system did not initially work as intended and underwent several changes – one of the biggest was the 2015 decision by George Osborne to reduce the UC budget, which limited its effectiveness. 

One of the biggest failings of the system compared to previous benefits was the decision to pay out in arrears. Claimants do not receive any payment until five weeks after their first claim whereas under the previous system they were eligible for payment straight away. The well-documented rise in food bank use appears to be highly correlated with the introduction of UC, with the Trussell Trust reporting a 67% increase in the distribution of food parcels over the past five years, as claimants simply do not have sufficient funds to buy food. 

A (partial) solution 

I have no political axe to grind, not being a member of any political party. But as an economist with an interest in social justice issues, the first thing I would recommend to the new Conservative government is to take action to resolve the flaws in the UC system. This would go a long way towards helping those voters in those areas who “loaned” their votes to the Tories in exchange for “getting Brexit done.” An obvious fix would be to reduce the waiting time before benefits are paid out. Another possibility would be to reduce the UC taper rate. At present, the taper rate is set at 63% which means that for every £1 earned above the Work Allowance, benefit is reduced by 63p. According to the HMRC tax ready-reckoner, each £100 increase in Working Tax Credit costs the Exchequer £260 million versus a cost of £605 million for each £100 rise in the personal tax allowance, so altering the taper rate is a cheaper way of helping the truly low paid.

If the Conservative Party is serious about renewing its contract with the electorate, small fixes such as this could go much further than the big headline-grabbing proposals espoused by the main parties during their election campaigns. They will be cheaper too.

Johnson's jamboree

Wow! That was the election result the pollsters did not see coming. It was seismic for a number of reasons and it is hard to refute the view that Boris Johnson emerged as the most attractive candidate in a contest of the ugly. Even Johnson’s victory speech acknowledged that many voters who have not voted for them before may simply have loaned their votes to the Tories because: (a) they had no interest in backing Corbyn and (b) they really do want to “get Brexit done.” A big majority of 80 seats – the largest by any government since 2001 and the largest Tory majority since 1987 – gives Johnson a mandate to do more than deliver Brexit. If he plays it right, he could potentially cement the Tories in power for another decade, such is the catastrophic state of the opposition.

Labour lost it in more ways than one

Indeed, this was a result which requires Labour to reflect on where it wants to go next. This was its worst showing since 1935 in terms of seats (chart above), although its share of the vote was higher than in 1983, 1987, 2010 and 2015, But it nonetheless underscored the extent to which Labour has lost touch with its core voters and Thursday’s result was a damning indictment of the direction the party has taken under Jeremy Corbyn. I pointed out in 2016  that Corbyn was the wrong man at the wrong time and I was not taken in by the 2017 election result, attributing this to a  backlash against Brexit, particularly amongst younger voters who looked for Labour to oppose it. However, I was astonished by the extent to which his unpopularity amongst voters was even cited by his own MPs. Labour’s problems with anti-Semitism and the perception that Corbyn is a terrorist sympathiser do him no favours amongst ordinary voters. His inability to take a position on Brexit lost him the youth vote and he was roundly criticised for signing off on Labour’s tax-and-spend policy.

But Corbyn is merely one manifestation of Labour’s drift to the left. To hear some of his fellow travellers deny the reality of the party’s position in the wake of this resounding defeat is to realise that it will be a long way back for Labour before it can be considered electable. The party has traditionally performed well when it tacks towards the centre, as it did under Tony Blair. But when it drifts to the left as it did in the 1930s, 1980s and under Corbyn this tends to be a recipe for electoral disaster. Blair was a proven winner who tapped into the national Zeitgeist and it is a measure of how far Labour has moved that party activists would rather criticise Blair for his involvement in the Iraq War than recognise his election-winning genius. When Labour loses long-held seats in my native north-east England, you know the game is up.

Lib Dems demonstrate the ineptitude of the centrists

Whilst on the subject of opposition parties, the Liberal Democrats’ failure to capitalise on its centrist credentials was a spectacular indictment of its own failings. Slightly less than half of voters supported Remain but the Lib Dems managed to capture only 11.5% of votes and won just 11 seats – one less than in 2017, with leader Jo Swinson losing her seat. Let us not forget that the Lib Dems were the enablers of this election. However, their promise to revoke the Article 50 notification was a serious policy mistake as it reinforced the perception of a party that was prepared to ignore the wishes of those voters who favoured Brexit. Many people have asked me why they would do something so dumb. I think the answer is that they assumed Labour would back a referendum and they simply wanted to differentiate themselves. 

But by ruling out any cooperation with Corbyn, the Lib Dems are directly responsible for scuppering any chance of a Remain coalition that might have given them a fighting chance of achieving their goal of overturning Brexit. To put it bluntly, both the main opposition parties made too many strategic and tactical errors that were evident to anyone with more than a passing interest in politics. One does have to wonder who was in charge of the election strategy for both the main opposition parties, for they were spectacularly incompetent. Next time round, folks, I am available for hire - I certainly could not do any worse.

The Tories could not lose against this level of opposition

The Conservatives did not exactly fight a stellar campaign but they kept their message simple and did not tackle Labour head-on on their own ground. Johnson largely avoided making too many gaffes and his promise to move beyond Brexit clearly resonated with a large part of the electorate. My views on Johnson have been well documented on this blog over the years and they have not changed. But I have to admit that the Tories fought a well-disciplined campaign and they were canny enough to pick a fight they could win. The party knew that it had a good chance of beating a Corbyn-led Labour Party. It might have struggled against a more credible leader, although it would almost certainly not have pushed so hard for a winter election if they thought they might lose. As it is, their vote share of 43.6% has not been bettered since Margaret Thatcher’s 1979 victory (chart below).

I will deal with the outlook in future posts. But the key concern right now is whether we will see a party that tacks to the right, as many of its more prominent politicians appear to want, or whether a more centrist version of Johnson will emerge that permits a broader church.  Johnson has a big majority which means he will be far less reliant on a small number of MPs to ensure the passage of legislation. This raises the possibility that he may not need to push for a hard Brexit in order to keep his MPs onside – a luxury that Theresa May did not enjoy. He may also be more emollient on the question of extending the transition period than he sounds today.

 

Holding the union together will be a challenge

But there are some big issues on the horizon. The SNP won 48 of the 59 Scottish seats, implying that neither the Conservatives nor Labour will have much representation north of the border. It is clear that Scottish voters, who voted 62%-38% in favour of remaining in the EU in 2016, do not buy into the policies espoused by the main Westminster parties and the push for a second independence referendum will gather momentum.  Similarly, nationalist politicians now outnumber unionists in Northern Ireland for the first time, indicating a possibly more favourable view towards a united Ireland. Future Conservative governments will thus have to devote more attention to maintaining the union. It can no longer be taken for granted.

Can the Tories demonstrate they are about more than Brexit?

The mould has also been broken in another way. Whereas in the past Labour could rely on the votes of working class voters in the former industrial heartlands, that may no longer be true in future. A generation of Labour voters would not countenance voting for the Tories after their policies were deemed responsible for triggering a wave of deindustrialisation. That changed this week. This is a sign that the old tribal certainties are breaking down as younger voters are no longer influenced by the historical conflicts that shaped their parents’ generation. Maybe Boris Johnson still has the old magic; Heineken Man refreshing the parts that other politicians cannot reach, rather than Marmite Man who is loved and hated in equal measure. Maybe! Johnson has the potential to be the unifying candidate that the country needs. But he carries so much Brexit baggage that he will have to redouble his efforts to prove that the Tories are more than a single issue party. It is going to be an interesting ride.

The moment of untruth

As I put this post together we are a mere hours away from the UK's third general election in just over 4 years. By the time many of you read it, polling may be over. Almost all voters agree that this is an election too far with an unedifying set of choices on offer. On the one hand, Boris Johnson is merely seeking office for its own sake with no indication that he has a plan for the next five years. As I have noted on many occasions, the notion of “getting Brexit done” by 31 January is fanciful. The UK may be able to leave the EU but there is a long hard road ahead. On the other hand, Jeremy Corbyn represents a throwback to a form of socialism that was not even popular when it was fashionable. He has a clear agenda but it is not one that the majority of voters share and I maintain my long-standing view that Labour will fall short of their 2017 performance.

Trust has been badly eroded in recent years by the actions of politicians, with that process having gained momentum in the five months since Johnson took occupancy of Downing Street. Johnson has attempted to ride roughshod over parliament; has thrown his political allies under a bus and expelled 21 MPs from his own side in order to deliver a Brexit that in his heart of hearts, he surely does not believe in. The reputation of the media has also come in for serious scrutiny, with a large group of voters having lost trust in the impartiality of the BBC which is viewed as having given the Conservatives an easier ride. Former BBC insiders have queued up to suggest that the Corporation’s judgement on a host of news items has been somewhat lacking. I am not going to join the group of BBC bashers but the very fact that so many now question its role suggests that its hard won reputation will not easily recover.

And then there is the role of the judiciary, which was forced to step in when the government attempted to circumvent the parliamentary process. The Conservative manifesto promises to set up a Constitution, Democracy & Rights Commission in order to “look at the broader aspects of our constitution,” giving rise to fears that a Tory government may extract some form of revenge following its defeat at the hands of the Supreme Court.

Predicting the outcome of the election is a mug’s game when we are so close to the opening of the polls. But the updated results from YouGov’s MRP model, published yesterday, suggested that the Conservatives will win a majority of 28 seats – in line with my prediction from last week – and which is down from 68 in the results released two weeks ago. If we believe there is a 65-70% chance of a Tory majority and a 5% chance of an outright Labour win, this implies a probability of 25-30% of a hung parliament – in other words, not negligible but not a highly likely event. A majority in excess of 20 should easily allow a Conservative government to ratify the Withdrawal Agreement Bill (WAB) by January and permit it to pursue whatever form of trading arrangements it wants with the EU. Since the Tories have made it clear that they will not extend the transitional arrangements beyond the end of next year, there may be nothing to stop a government with a decent majority from triggering a hard Brexit at end-2020 – either by accident or design.

But given that there is a considerable margin of error attached to any election forecast, we cannot rule out the prospect of a Johnson government with a majority of less than 20. This would mean that Johnson would be as beholden to the lunatic fringe in his parliamentary party as Theresa May. He can still get the WAB over the line by January but his room for manoeuvre thereafter is likely to be limited as he will not be able to afford many Tory rebels on key pieces of legislation. Matters turn more complicated if the Tories remain the largest party but fall short of a majority. After all, the DUP will not help Johnson out after his betrayal over the Irish border question, and the election designed to bring the country back together will have proved to be another gamble that failed. There are other possible outcomes which do not involve the Conservatives in government at all, but we will look at those in the event they become a realistic prospect.

However, the fact remains that whatever the outcome, the country will remain divided on so many issues. Given the philosophical gap between the two main parties, it is hard to see much cross-party cooperation in parliament which sounds like a recipe for more of the fractious deadlock that has been the soundtrack to the last two years. As far as Brexit goes, Leavers may well have lost the war, largely thanks to the incompetence of Leave-supporting politicians, but they will not be assuaged. And those in favour of Brexit may yet experience buyer’s remorse if it does not go as planned. With the Brexit economic dividend remaining as elusive as the unicorn, I predict that GDP growth will remain sluggish – which in fairness will also be due to the ongoing global slowdown. But a lack of investment will mean that the capital stock slowly becomes less productive with the result that productivity growth – the key driver of living standards – will likely remain stuck in low gear.

Neither Labour nor the Tories will be able to deliver on their promises. Labour simply will not be able to boost spending as quickly as they plan: If they can get halfway to their targets they will be doing well. Meanwhile, the Conservatives will almost certainly expand fiscal policy by more than their manifesto currently suggests. Spending on the NHS will almost certainly have to rise because otherwise it is likely to be a vote loser for them by the time of the next election (on the assumption that Labour chooses an ABC leader – Anyone But Corbyn – to oppose Johnson). But rather than increase spending there have been suggestions that the Conservatives will cut taxes – something that was not in their manifesto – with Johnson indicating in a BBC interview that “in our first budget we propose to do more to cut taxes.” Whatever happens, fiscal deficits seem set to increase.

In just over 24 hours it will all be over. Whilst I don’t buy the Johnson slogan of “get Brexit done” I am sure I speak for millions when I say “get this election done.”