It’s too early to say how Boris Johnson’s premiership will impact Britain’s economy – but it’ll certainly be a bumpy ride

Ordinarily, a new prime minister offers a chance to reinvigorate growth, but this time it really is different

New PM; same problems. The reaction on the foreign exchanges to Boris Johnson becoming prime minister was less than enthusiastic, as indeed will be the reaction of quite a few people in the country. But at a time like this I think it is more helpful to focus on what is likely to happen, rather than what, depending on one’s view of the world, should happen.

The next few days will see a string of appointments as the new team is put together, so it is far too early to predict the detail of future policies. But we can sketch, from what Johnson and people around him have indicated, some of the economic themes of the coming weeks.

The first thing to say is that the maths are the same. Growth has been decent enough, over the past 12 months as good as or better than Germany, France and Italy, though worse than the US and Spain. But it is slowing. Tax revenues, which had been solid until a couple of months ago, are rising more slowly, and employment growth, also solid until the latest numbers came out, also feels slightly weaker.

All this is happening against the fear that the world economy as a whole is slowing, and we will get some hints about how the European Central Bank will respond this Thursday. Expect too a cut in interest rates from the US Federal Reserve.

What does a government do when it wants to jack up growth? It eases fiscal policy. And that is exactly what the new UK government will do. Spend more, tax less. Can it? Well, yes, because the deficit is now only a little over 1 per cent of GDP and it could be pushed up to, say, 2 per cent of GDP. That additional percentage point works out at more than £20bn.

Next, expect a few cheap measures that catch people’s imagination. Expect some deregulation, and a few high-profile tweaks to taxes. Might a cut in stamp duty on homes actually raise more money by boosting the number of transactions? It’s worth a try.

There will certainly be something on the infrastructure front, perhaps redirecting the money earmarked for HS2 to railways in the north of England, rather than getting people from London to Birmingham a bit faster. In the medium-term it certainly makes sense to use a period of very low interest rates to build much-needed stuff.

There will also be some form of deregulation. The point here is not to create a free-for-all. No one, aside from the hardline anti-government ideologues, want that. Rather it would be to look at ways in which our hugely regulated society could be adapted to the benefit of all. The most obvious area is planning. We do need to build more homes.

And then there is Brexit. One of my colleagues suggests that the easiest way to boost the economy would be to abandon Brexit, and that is probably right. But even given the characteristic unpredictability of Johnson, that would be a stretch.

It is hard to trust any of the economic modelling of various Brexit scenarios, given the wildly over-gloomy results of the Treasury’s pre-referendum predictions. Nevertheless, the latest numbers from the National Institute seemed, to me, to be pretty credible: minimal damage from a Norway-type soft-Brexit arrangement, and a flat couple of years followed by a recovery in the event of a managed no deal. Those flat two years would mean that after 10 years we would be about 4 per cent worse off than we would have been had we remained in the EU, a smaller hit than we (and other developed countries) took from the 2008-09 recession. Not terrible, but not ideal at all.

On economic grounds, if you accept that the UK will leave, there is an overwhelming case for a soft Brexit. But can Johnson negotiate our way to that sort of outcome?

There is a narrow window. It would involve some clarification of the May deal to make it more acceptable, coupled with rock-solid assurances of the trade deal to be negotiated thereafter. Could that happen? Could Johnson sell it? All that is speculation. There is, as we all have seen, a chasm between what might reasonably be expected to happen and what does happen.

Meanwhile, we can be sure of one thing. The next few weeks will be bumpy indeed. Sterling will take the strain, perhaps even falling to the $1.05 level it reached in 1985 – the lowest against the dollar that it has ever been. And that will be the useful rule of thumb to help us figure out how well, or badly, things are going. Sterling below $1.20 would be bad; above $1.30, a wee bit better. Sadly for many however, a sterling recovery would be a bit late for the foreign holiday.