Will the UK seek growth by working with the US – or cosy up to the EU with stifling employment regulations and higher taxes?
There was a fascinating article by Ross Clark in the Spectator this weekend that points out that since 2008 when the UK’s GDP per capita on a dollar basis was 97.5% of the US, at the end of 2023 it had fallen to a shade under 60%.
On a purchasing power basis allowing for exchange movements, it looks slightly better, at 72% of the US GDP per capita in 2023.
No matter how you want to look at it, since Q4 2019, the US has grown by 11.4%, France by 4.1%, the UK 3.0% and Germany a meagre 0.2%.
The choice for Starmer and his cabinet is stark – cosy up to low growth Europe, or stop the grandstanding and work with the US.
For, as Stephen Moore, Donald Trump’s economic adviser says
‘I’ve always said that Britain has to decide. Do you want to go towards the European socialist model or do you want to go towards the US free market? Lately it seems like they [Britain] are shifting more [to] a European model and so if that’s the case I think we’d be less interested in a free trade deal.’
The Trump administration may be offering the UK a free trade deal at the same time the President Elect is threatening a general tariff of 10 to 20 per cent on most imports to the US – and much higher on those from China. Britain has been drifting ever since Brexit, but clearly, we are heading for crunch time.
Kamal Ahmed, writing in the Telegraph, thinks all is not lost provided Starmer plays his cards right for incoming President Trump may be offering Starmer a “get out of jail card”. Ahmed highlights five essentials Starmer should observe and implement:
"First, Starmer will need to take the battle more clearly to his party and the unions that reform of the state and public services is non-negotiable. This Government must bring down its own costs and the costs of the public sector if it is to have any chance of reducing the inflationary spiral ahead.
Second, businesses will need to be more directly championed and supported. Chief executive after chief executive has complained that the tax rises on business the Government has already announced will only harm employment levels and increase costs to customers. (And as today’s protests in London show, it is time the farmers be supported, as well!)
Starmer should make clear to his Cabinet that plans for new employment regulations – subject to two years of consultation – will be gradually unravelled, only keeping a few core elements for political cover.
On climate change, the PM should admit that it is time to dial down the language and the promises. Last week’s report by the government’s own National Energy System Operator (NESO) gives cover, setting out the Herculean, and many would say ridiculous, targets that need to be met on building pylons across the country and wind farms in the sea. Ed Miliband may need to be jettisoned.
Starmer will also have to rein in his own Europhile instincts. Trump is likely to be more aggressive with the European Union on tariffs than he is with the UK. The Government should take advantage of the President-Elect’s own backing for Brexit, keeping clear of political, financial and regulatory EU entanglements. That could open up tariff-forgiveness for the UK, a country Trump instinctively likes"
Will the Prime Minister take heed of Kamal Ahmed’s suggestions? I’m not holding my breath!
But whilst you may or may not agree with the prospective US Government penchant for tariff protections, one thing is certain – the financial teams running the UK’s businesses, big and small, will need to use the best tools available to them to forecast their financial performance and on a periodic (hopefully monthly) basis keep on top of the variances between their budgets and their actual performance, providing decision ready information.
And the very best tool for this is undoubtedly Forecast 5, which whilst robust is simple to use, has scenario planning (“What if”) capability, handles multiple currencies and consolidations easily and can quickly produce C-suite quality P&L, Balance Sheet, Cashflows and Fundsflow statements, all neatly balanced.
Try Forecast 5 for yourself by downloading a free, 21 day trial from our website or please contact us for a no obligation chat
