Henk Potts - State of the nation - Thursday 8 December 2016

“It feels like a lot’s changed in the last few months in both the UK and US,” Henk Potts told Care Conversation delegates, with Brexit and the election of Donald Trump. “What we do know is those votes have widespread economic and constitutional implications.”

Financial markets tended to be very resilient, however, and growth remained the default setting for the world economy. “Brexit will undoubtedly have significant implications for the UK’s growth profile, as the UK has benefited from EU membership,” he said. This had meant access to both the single market and a much larger talent pool, as well as “a seat at the table” in determining policy issues like trade, security, the environment and more.

The UK economy had been a strong performer in the years following the financial crisis, he pointed out, but it hadn’t been a “perfect recovery” and it was likely that the economy would slow significantly in the coming years, exacerbated by uncertainty over whether the UK had the capacity or ability to make vital trade deals in a relatively short time frame.

Employment growth was likely to turn negative and inflation was likely to “pick up significantly”, he said. “It’s no surprise that sterling has been sold off indiscriminately as a result of Brexit.” The government had abandoned the previous target of balancing the books by 2020, money was now flowing into perceived safe currencies such as the US dollar, Swiss franc and Japanese yen, and there was the risk that Brexit had increased the possibility of further contagion in the Eurozone.

“So where do we go from here?” Possible Brexit options included bilateral agreements or the ‘Norway model’, although as they required both payment into the EU and freedom of movement, a reasonable question would be “what’s been the point of all this?” he said. “We have to be cautious about the idea that we’ll have continued access without paying the price. We’re in a new chapter of high economic and political uncertainty, and Brexit is yet another roadblock on the Eurozone’s journey.

“And then we come to the US presidential election,” he continued. “The once implausible and laughable has become reality.” Although there were a great many checks and balances – “one can’t help thinking the Founding Fathers may have had The Donald in mind when they put those in place” – the fact that the Republicans now controlled both houses in the US Congress meant that Donald Trump could have more influence than previous presidents, he said.

“We’re getting some idea of the likely direction of travel. Lower corporation and income taxes, higher infrastructure and military spending, and less focus on things like environmental regulations,” he said, while two of the main tenets of the Trump campaign – stimulus and tariffs – were likely to figure largely, albeit not to the extent that he had previously implied. “What we do know is that the US economy has under-performed this year, but if you look longer term it’s likely to continue to benefit from investment. The US consumer – the driving force behind the economy – is looking in good shape, and house prices are still rising.” A 2.2% growth in GDP was predicted for next year, although the Federal Reserve would be under increasing pressure to raise interest rates, he said.

“Then we come to China, the key export market for many countries. It’s vital that China continues to grow, and it is growing – but at a slower rate than the extraordinary growth we saw in previous years.” A ‘hard landing’ for the Chinese economy was unlikely, he said, “more a glide down to a slower, more reliable growth”. India would be the world’s most populous country by 2030, however, which was likely to make it the fastest growing economy over the next ten years.

In terms of Brexit’s impact on the UK’s health and social care sector, restrictions on free movement could hit hard, he said, with an aging population meaning an ever- growing demand for staff. “The economic effect of immigration has been incredibly positive – this could have a significant effect, depending on how it plays out.” The UK would also need the right education system to adapt to changes in the job market brought about by advances in technology, with the likely impact of Brexit on research still unknown.

Finally, the NHS would remain a significant policy challenge, he warned. “Either it becomes more efficient, or we become more realistic about what it can achieve.”