2029

A peek into the future …

Struggling as I am to make sense of the current environment, I enjoyed the challenge this week of presenting my thoughts on the UK Economy in 2029 at the BVCA Summit 2019. I did note that predicting what will be happening at 20:29 in the evening is a challenge on most days, and I doubt many people in 2009 would have predicted the demise of the BRICs, the path of UK interest rates, the election of President Trump or Leicester City winning the Premier League in the period to 2019.

… which may be closer than we think …

Notwithstanding the uncertainties, some of the key influences that are likely to shape the UK economy in 2029 are present today:

• Deglobalisation: The world has moved from faces of being pro- and then anti-globalisation over the last century, and we appear to be moving into a period with less support for cross-border expansion. This will cause businesses to reorganise their cross-border supply chains, go-to-market models and back-office operations.
• Technology: Change will impact the world of work and many jobs will either change or cease to exist. This topic generates a huge amount of interest currently, but I expect the impact will be slower and less dramatic than consensus forecast. The move to autonomous cars appears to be stalled and this is in line with history – after an initial hype, reality sets in.
• Demographics: The UK population is ageing. This will lead to higher health and welfare spending over time, and with people living longer, their wealth may remain outside of mainstream consumer spending for longer.

These three influences have been prominent for some time, but I believe the two most significant shapers of the future nature of the UK economy are the climate emergency and the shift in political sentiment. Awareness and willingness to respond to concern over the climate have increased dramatically, and this is now the most prominent topic in my client discussions. Politicians and businesses will have to do more than they have to do to meet the demands of voters and customers.

The political mood has shifted from the pro-market, small state, 'Washington Consensus' that has dominated for almost four decades since the elections of Ronald Reagan and Margaret Thatcher. In the UK, a majority of voters are in favour of public ownership of rail and water utilities, and surveys also suggest that higher tax to support increased public spending will be popular. All of the main UK parties are proposing higher public expenditure levels than they were five years ago, and this will be accompanied by more interventionist policies.

… though there is significant uncertainty …

There are many alternative paths for the UK economy to take up to 2029. The starting point is one of weakness, in terms of our trading position and the chronic lack of business investment in recent years. Income inequality remains high – compared to the situation in 1980 – and productivity growth has disappointed for a decade. The path ranges from one of very low growth, due to the impact of enhanced global tensions as geopolitical and trade disputes become more severe, through to a very positive vision in which technology drives rapid economic growth over the next decade.

… a challenging journey seems likely …

I believe the most likely scenario is for Brexit to usher in a period of low growth as the UK adjusts to the shock of a change in our major external trading and political relationship. With a Free Trade Agreement – with no membership of the EU Customs Union or Single Market – as the Government’s preferred option, slow growth – especially in the manufacturing dependent North and Midlands – is the most likely outcome. This will create the platform for a shift to a dramatically more interventionist policy-making from the middle of the next decade, characterised by major investment in high-speed broadband, increased public R&D spending and a large increase in resources allocated to skills and education. This will be alongside an ambitious Green Deal and a concerted programme to drive growth outside of the UK’s major cities.

… with winners and losers …

By 2029, we will be seeing the first signs of technology driving productivity improvements in the health and manufacturing sectors, alongside some reduction in both income and geographic inequalities. There will be winners and losers on the path to 2029. I would expect that food, renewables, growth and environmental technology, financial services and advanced manufacturing will have a positive experience, but it will be a tough decade for automotive, consumer, pharma, defence, chemicals and platforms.

… and all still to play for

This is one of the most uncertain times of my career and hence a wide range of outcomes are possible. What is clear, is that the UK is exposing itself to a major political and economic shock, at a time of significant turbulence in the world economy. If we are to prosper, then we will have to do much better at managing the impact of a structural shock than we did in the 1980s and after the financial crisis. Hold on to your hats!