Political and economic uncertainty: Experts give their predictions for 2016
Uncertainty is the dominant mood in the economy and the political system. That was the message from two leading pundits at an ICAS breakfast event yesterday.
Brian Taylor, the BBC’s political editor for Scotland and Merryn Somerset Webb, editor in chief of Money Week magazine, shared their thoughts, at a breakfast event in Edinburgh yesterday, on what this year holds in store. Their presentation was enlightening and entertaining – if not very reassuring.
Three major areas of uncertainty overshadow UK politics, Brian Taylor said: the fragile state of the global economy and the low oil price in particular; the emerging threat of international terrorism; and defence, particularly the questions over what Britain’s role in the world should be.
In the short-term, he added, Europe would be one of the key issues in politics this year. Mr Taylor expected that the referendum on the UK’s membership of the European Union would be held as early as possible, probably on 23 June, subject to the package of reforms proposed by Prime Minister David Cameron being agreed by the EU’s member states.
Mr Taylor added that the reason for Mr Cameron’s haste was to minimise the damage to unity in his party. As he put it: “The question of Europe threatens, for the Conservatives, to override party loyalty.”
If the UK votes to leave the EU but the majority vote in Scotland goes the other way, would it trigger calls for a second referendum on Scottish independence? This has been argued by former Scottish National Party leader Alex Salmond, but Mr Taylor suggested that his successor might be more circumspect about the timing of a second referendum.
The question of Europe threatens, for the Conservatives, to override party loyalty.
He said: “Nicola Sturgeon does not simply want to hold a second referendum; she wants to win it. The evidence is not there, so far, that she would do so.”
Mr Taylor also said that, with new tax-raising powers for the Scottish Parliament and more sweeping tax devolution set to come next year, tax is figuring as an issue in Scottish politics as never before.
Labour have proposed a “penny for Scotland”, with a penny on all rates of income tax, offset by a rebate for lower income households. The SNP are not convinced that the latter is workable or legal, and in any event, Mr Taylor said, Scottish Finance Minister John Swinney is reluctant to send out a message to voters that devolved tax powers automatically means higher taxes.
He added that he expected that Holyrood and Westminster would eventually thrash out a deal over the “fiscal framework” underpinning the devolved tax, but not necessarily before the Scottish Parliamentary elections on 5 May.
Merryn Somerset Webb surveyed the gloom currently over the global economy, with stock markets in turmoil, the US economy faltering and Chinese growth slowing.
She noted: “Interest rates are at the lowest they have been for generations and if there was anything good happening in the world economy, we would be seeing them going up by now.”
Looking at the big picture, however, Ms Webb argued that demographics was the most important driver for economic trends, and also one of the most predictable.
Banning people from holding cash takes monetary policy to an undemocratic extreme that we could not have envisaged a few years ago.
She explained how an ageing population in the developed countries was leading to slower, or no, growth, and this was bringing down inflation. The low level of inflation is a problem because debt remains at a high level, while under conditions of growth and inflation, national and personal debt tends to be eroded in real terms.
Ms Webb said conventional monetary policy had failed to solve the problem and central bankers were now looking at introducing negative interest rates. As that tends to lead people to hoard cash, penalties were also being mooted to prevent people hoarding cash.
She commented: “Banning people from holding cash takes monetary policy to an undemocratic extreme that we could not have envisaged a few years ago.”