After a barnstorming performance by Jeremy Corbyn at the Labour Party conference last week, the message must be clear by now. The triumph of the left looks like no passing squall. Instead we may be seeing a fundamental step change in UK politics and Britain’s biggest opposition party now committed to the most radical hard left programme for 50 years.
Not only is the left now firmly in the ascendant within Labour and calling the party tune on policy, but there is also a real possibility, given the disarray within the Conservative ranks, that Jeremy Corbyn could be our next Prime Minister – renationalisation, higher taxes and all.
It’s a prospect that surely should have the sirens blaring, leading business figures sounding dire warnings – and financial markets on the retreat.
But for all the blanket coverage of last week’s conference, including shadow chancellor John McDonnell’s talk of “war games” to deal with a likely capital flight and collapse in the pound, there has been barely a squeak.
Indeed, far from nervous selling on the stock market and grim prophesies of business despair, it is as if the Corbyn phenomenon has barely registered.
Last Friday the FTSE100 Index closed sharply higher, and while still down a little from its peaks this summer, it has climbed 10 per cent since its low point a year ago to 7,372. And the FTSE250 Index, more representative of UK mid-size domestic-focused companies, ended the week at 19,874, or almost 15 per cent up from its 12-month low. The pound, too, has rallied from Brexit induced woes just a few weeks ago.
As for the mood on the high street and fears of a consumer retrenchment, the Confederation of British Industry’s distributive trade survey – an authoritative pulse-take on this sector – has just reported sales at a two-year high in September. “There may have well been some corrective elements after a disappointing August survey”, the CBI comments, “but there is no denying this is a robust survey.”
It follows data from the ONS showing that retail sales volumes rose 1 per cent month-on-month in August. “It therefore looks very possible,” says the CBI, “that consumer spending will make an improved contribution to GDP growth in Q3 and fuels our belief that growth will likely pick up to 0.4 per cent quarter-on-quarter from 0.3 per cent in the April-June period.”
What on earth is going on? Is it that UK businesses and investors do not believe that the political winds are changing, with even the Conservative Party espousing traditional left calls for greater government spending and more controls on business? Or have the prospects of a Corbyn premiership just been massively over-hyped by the media?
It’s hard not to detect in the Labour lurch to the left an element of ostrich-like behaviour – a reluctance to acknowledge the huge challenges presented a dependence on overseas capital and investment and £1.8 trillion of UK government debt. The massive cost entailed by a Corbyn-McDonnell programme would only add to this. Corbyn’s youthful supporters have yet to confront the eternal truth of Nye Bevan on all such ambitions: “the language of priorities is the religion of socialism”.
But ostrich-type behaviour is not confined to the political left. It is evident, too, across many sections of the business community and its traditional Conservative supporters – burying their heads for no other reason than that they feel little can be done to reverse the anti-capitalist, pro-state control populism that has driven Labour Party membership to its highest levels – and with support for some of the party’s proposals such as rail nationalisation and greater public spending gaining across the political spectrum.
Now it’s certainly the case that recent financial market behaviour has been influenced by fresh warnings from Bank of England governor Mark Carney that interest rates could rise in the “relatively near term”. This has had the effect of boosting the prospects of companies with big overseas earnings.
The latest salvo came last Friday and was the clearest indication yet that there could be a rate rise as early as November. The next opportunity for a change in interest rates is the bank’s monetary policy committee meeting on 2 November. The pound fell back against the dollar and the euro, while shares in many UK companies rose on the prospect of a lower exchange rate which would help boost exports.
As it is, recent CBI manufacturing surveys and company order books suggest that business is perhaps not suffering quite as badly as some commentary has recently made out. Indeed, higher rates may help to boost support for the small and mid-cap sectors. And UK companies would almost certainly benefit from a big Keynesian-style boost to public spending on housebuilding and infrastructure. Personal incomes would also benefit in the short term.
As so often, business is overwhelmingly preoccupied by the immediate concerns of order books, delivery and cost control. Rousing Labour conferences come and go. The focus of attention now is to secure business growth during what is a lacklustre period for the economy. Revised official figures last week showed that the UK economy grew at its slowest annual pace since 2013 in the three months to June. Gross Domestic Product is now thought to have grown by 1.5 per cent from a year earlier, down from an earlier estimate of 1.7 per cent. And as many across the business world see it, there would be little justification for a rise in rates now given that the economy is running significantly below long term trend. Separate figures from the ONS indicated that the UK’s key service sector contracted by 0.2 per cent in July.
As for the big “swing to the left”, many in business may simply be waiting for the Conservatives to hit back with a vigorous defence of free market policies. But a notable refrain in Prime Minister Theresa May’s remarks on business is that some of the criticism is well justified and that boardrooms, particularly of the big utilities, need to undertake some radical action of their own.
But we have waited a long time for that. The Prime Minister is also in a weak position. She displays none of the rousing passion that Corbyn has brought to the political stage. And it is all starting to look a little too late.