By looking at UK newspaper headlines you might think the country is in political chaos. There maybe some truth to that claim but it’s less uncertain than it has been for years.
It matters because uncertainty around government policy tends to slow growth.
First, an example some notable chaos occurred earlier this month when the British Parliament’s speaker (roughly equivalent to a soccer referee but for political arguments) Lindsey Hoyle managed to ignite “howling fury” from some Scottish National Party Member’s of Parliament, according to a report from the UK’s Guardian newspaper.
The issue that upset the howlers was simple: the speaker made a contentious ruling on amending an Israel-Gaza ceasefire resolution to be debated in the House of Commons, the lower chamber. He subsequently apologized.
The short description from the Guardian: “Bawling bedlam.”
Other recent chaos included the super fast ouster of Liz Truss as Prime Minister after her fiscal and monetary policies got derided.
So that’s just two theatrical examples of Britain’s chaotic political life. And it would be easy to conflate that with uncertainty over government policy towards businesses and the economy.
Well despite the alleged Bedlam (named after an ancient London-based psychiatric facility) the country doesn’t appear to be too worried about economic policy uncertainty.
A group of American economists got together years ago to develop the Economic Policy Uncertainty Index for a variety of different countries including the UK.
The index works as follows according to their website:
“We construct this index in a similar manner as our index based on American newspapers. Here we include 11 UK newspapers: The FT, The Times and Sunday Times, The Telegraph, The Daily Mail, The Daily Express, The Guardian, The Mirror, The Northern Echo, The Evening Standard, and The Sun.”
It utilizes articles “containing the terms uncertain or uncertainty, economic or economy, as well as policy relevant terms,” the website says.
They then calculate whether there has been more discussion of economic policy or less.
The latest figure, January 2024, for policy uncertainty in the UK is 100. However, if we look back through all the monthly readings to January 2016 we find that 100 is much lower than the average economic policy uncertainty reading which was 178.
It matters because businesses of any size don’t like uncertainty around what economic policies will or will not be changed. Imagine it like this. If you were a football manager training a team of players you’d likely want to be sure that the rule of the game wouldn’t change after you’d put a lot of effort into making them the best set of sportspeople possible.
In fact, that would probably be infuriating for any manager or coach in any sport. ell, the same is true in business.
If the government isn’t clear about what will be the rules of engagement in the country’s market-based system then business leaders likely will not want to invest as much money.
In turn, that has a dampening impact on economic growth.
Maybe that did happen around the Brexit vote, when the uncertainty index did jump.
But now its come down to earth, things should be better for the economy.
