View from Chancery Lane - Michael Moore looks at the storms ahead after a turbulent few weeks

It is barely two months since I opened my first commentary of the new political season by observing that “There was a time when prime ministerial contests in the UK were rarer than heatwaves. But that may no longer be the case, even after this Summer. Next week we will learn the results of the third such election in 6 years…” Make that 4 in 6 years. We have now had more Prime Ministers this autumn than storms so serious they are given a name - we are still waiting for ‘Antoni’, the first on the Met Office list for 2022-23.

The new Prime Minister, Rishi Sunak, will be hoping he can oversee a period of political calm to match the meteorological one. He brings a startling level of experience to the role, having served as a minister for about half his 7 years in Parliament. Most of that has been at the top of the Treasury during the unprecedented challenges of the pandemic. And given the current hazards the country faces, and the circumstances of his appointment, he is more likely than most (other than Gordon Brown, perhaps) to regard the PM’s role as ‘First Lord of the Treasury’ as rather more than symbolic.

The immediate effect of Mr Sunak’s rise to the most important political job in the country has indeed been calming. Not just for the Conservatives, but for the financial markets, too. Around him he has gathered a cabinet which blends the talents and political torch-bearers from the different caucuses in his party. Some of the appointments may have raised eyebrows, but political unity has been at a premium and the intent here is clear for all to see. At the risk of tempting fate, he seems to have created a decent amount of breathing space for himself and his colleagues.

In addition to the political balm, there has been plenty to sooth the markets as well. Keeping the trusted Jeremy Hunt at No11 (the Chancellor’s Downing Street base), signalling that tough decisions will be taken on tax and spending, upgrading the next ‘fiscal event’ to a full ‘Autumn Statement’, with associated independent scrutiny by the Office for Budget Responsibility – together these have wound back the bond market rates for government borrowing and made the Bank of England’s next set of interest rate decisions less convoluted than many feared barely a fortnight ago.

So far, so good. But as with Atlantic swells, tumult in politics can arise at short notice. And while global traders see the Autumn Statement as a lighthouse for the markets, others worry about the rock on which it is built and which political priorities may yet be dashed upon it.

Mixing my metaphors as freely as ever, I will happily recycle the prime ministerial ‘to do list’ offered in that early September article: “Item one is the economy. It always is, but with the outlook as weak as it has been in years, there is no escaping it. Employment is one of the few areas on the dashboard not blinking red (so far). Otherwise, the immediate questions include how quickly low growth turns negative and how long a recession could last? The Bank of England said in August that it expected Q4 to be the entry point to a year long recession. Others are less sanguine.” I think we can agree that is unchanged.

Likewise for other suggestions: “Items two and onwards in the Downing Street inbox are a varied and complex lot - what trajectory will public spending take, especially in core areas like the post-pandemic NHS? Whither ‘levelling up’? Will leadership on climate change action remain important? What about future industrial relations? How are financial services to be regulated? Is reform of the Bank of England afoot?” Perhaps only that last item, mooted over the Summer, has come off the original list.

The clear intent expressed by both the Prime Minister and his Chancellor is to take the tough decisions which were seen to be ducked by their predecessors. Rowing back on the earlier announcements by Ms Truss and Mr Kwarteng takes them some way, but the weakening of underlying economic conditions has made the political choices harder. The country’s new leaders seem set on their economic and financial course, so their big test will be the political consequences of cutting spending and raising taxes. In three weeks time their first paper will be marked.

And for the industry? Nobody ever takes a stable economy for granted, but after recent weeks it is more appreciated than ever. The past few days have seen a welcome return to first principles on that score, at least. The policy agenda relevant to private capital has yet to be spelt out, but in our priority areas of maintaining a competitive investment climate, accessing new UK capital sources, supporting innovation and attracting global talent, the new and recycled ministers have good track records. So there are some grounds for optimism, whatever other storms the UK may be heading into.

Michael Moore
Director General, BVCA