Without allowing North Sea Oil or Returning to EU, how can the GBP rise?

Without allowing North Sea Oil or Returning to EU, how can the GBP rise?

The danger of Burnham shuffling deck chairs on the Titanic.

The UK has spent decades under-investing in resilience.

That is the uncomfortable point at the heart of the current debate about Britain’s economic model. It is tempting to frame the issue as public versus private ownership, or as a simple reversal of the 1980s. But that misses the deeper problem.

The UK did not just spend the peace dividend. It spent the depreciation dividend.

Infrastructure was allowed to age. Public services were squeezed. Energy security was treated as someone else’s problem. The City was treated as a golden goose. And the country became comfortable with an economic model that worked only while capital was cheap, globalisation was benign, and external shocks were rare.

That world has gone!

A currency rises when investors believe a country can generate better real growth, attract capital, control inflation risk, and maintain fiscal credibility.

So what would make GBP structurally more attractive?

The obvious answers are uncomfortable.

First, energy. Britain’s reliance on imported or globally priced energy has left it vulnerable to shocks. More domestic oil and gas would not be a complete strategy, but it would fit the resilience argument. If the UK can reduce external energy vulnerability, it reduces one source of pressure on inflation, household incomes, the current account and industrial competitiveness. How do we bring the debt down?

Second, Europe. Brexit damaged the UK’s market access, weakened the stock market ecosystem, and reduced the attractiveness of the UK as a base for capital. A closer relationship with the EU, or eventually rejoining, would be one of the clearest ways to restore scale, credibility and investment appeal.

Without those two levers, the path for GBP is harder.

That leaves a Burnham government, or any UK government, needing to do three things at once:

Be fiscally credible
Do not scare the gilt market. If investors think fiscal rules are being loosened without a credible plan, sterling will struggle.

Protect investment
Fiscal tightening may be necessary, but cutting public investment again would repeat the mistake of the past 40 years. The UK cannot rebuild resilience by cancelling the spending that creates it.

Build a new productive model
The old City-led model is not enough. The UK stock market is shrinking, listings are leaving, and financial services alone cannot carry the economy. Britain needs a path back to the EU to survive. 

That is the narrow road for GBP.

The market is clearly positioned for what i am talking about as we observed when a credible chancellor was announced, the GBP rallied. The enthusiasm will soon wear off however if Burnham choses not to acknowledge the simple reality that the UK has very few options and this is not the time to shuffle deck chairs on the Titanic.
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