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Welcome readers. I’m backpacking in Vietnam and Laos this week, so I’ve prepared something slightly different.
As readers know, the aim of Free Lunch on Sunday is to present analysis that counters conventional wisdom. For each piece, this often involves discussing positions with economists and market strategists that are not necessarily their house view.
So for this edition, rather than the usual synthesis of my findings, I wanted to share more of what the analysts told me. I asked experts to sketch out a bullish scenario for the British economy over the next decade, and what it would take to get there. Here’s what they said.
First, the global backdrop. Labour’s large parliamentary majority means the UK now stands out for its (relative) stability. France has an unstable coalition and Germany faces an election in February. Political views in the EU are splintering. In the US, President Donald Trump appears more interested in fomenting uncertainty.
As for trade disruption, Britain’s specialism in services — and position outside the EU — puts it less in the line of fire of Trump’s tariff plans. The US president is more focused on the trade in goods, particularly with China and the European trading bloc.
Labour has already eaten into this “stability dividend” by lumbering companies with high taxes in its autumn Budget. Still, Marko Papic, chief strategist at BCA Research, reckons that the autonomy Britain has from being less restrained by internal politics and trade wars could be a boon:
“The UK should be pursuing an independent trade policy. The advantage of being outside the EU is going to diminish if the UK simply adopts an American attitude towards China. A multipolar world is one where geopolitically promiscuous countries outperform.”
Building on this advantage would require a targeted approach to striking agreements. Deals on the trade in services could allow Britain to export its comparative advantage in high-value services further and wider. And reducing the red tape involved in trading with the EU, the UK’s largest trading partner, would boost supply chains.
Less Trump exposure is also why some of Wall Street’s biggest institutions are betting that UK equities will outpace the rest of Europe’s this year. They believe banks and energy companies — which have large weightings on the London Stock Exchange — could experience a boost from Trump’s deregulation and pro-oil policies. Low valuations also look attractive.
But British stocks will still need a catalyst to drive equity values up. I asked Hugh Gimber, global market strategist at JPMorgan Asset Management, where it may come from:
“Over the past decade, developed market tech stocks have outperformed. But the UK is underweight in this sector, making it almost impossible to keep pace. If investors start to find more evidence that AI-related capex is set to unlock productivity gains across the economy, we would expect to see a wide range of sectors play catch-up to the recent tech leadership. That would certainly help to level the playing field for the UK.”
Indeed, Britain ranks third in Capital Economics’ index of advanced economies best-placed to benefit from AI adoption, given its large services sector and flexible labour market.
Efforts to unshackle Britain’s vast pension capital — the largest in Europe — could support more investment in public and private equities, both at home and abroad. But Gimber suggests there are better levers to pull:
“Stamp duty taxes on share trading raised £3.2bn in the last fiscal year, but for the stock market, these transaction costs are a clear competitive disadvantage versus other regions. It not only applies to retail investor participation, but also reduces the incentives for new companies to list in the UK.
Crucially, successful policy changes must create greater incentives for both individuals and institutions to put money to work in the UK, both by restoring confidence and removing hurdles.”
A few studies suggest slashing stamp duty on shares could raise revenues in the long term by boosting growth.
And with tight public finances, “removing hurdles” is where Sam Dumitriu, head of policy at Britain Remade, thinks the UK can get the biggest bang for its buck.
“Britain’s bottleneck is building stuff. It is simply too hard to build new homes in our most productive places, too hard to build new energy infrastructure, and too hard to build new transport links. Hinkley Point C, which is set to be the most expensive nuclear power station ever built, has involved a six year dispute about the inclusion of a ‘fish disco’.
We know what needs to be done. Reform the planning system so it no longer, in effect, bans new investment in everything from homes to industry.”
Labour’s Planning and Infrastructure Bill is expected in the coming months. If it can streamline regulations, speed up approvals and clear more land for development, investment could jump.
The government’s industrial strategy, due to be published this spring, is set to unveil opportunities to crowd-in private investment into key infrastructure projects. It is also supposed to outline plans to boost Britain’s existing strengths in high-demand growth sectors. These include financial and professional services, university research and education, renewables (wind, carbon capture and storage), life sciences, aerospace technology, artificial intelligence and creative industries. (Less red tape, wider investment incentives and improved access to training and high-skilled talent would all help.)
That Britain does these complex things pretty well, but struggles with simpler tasks, is a reason to be optimistic, adds Kallum Pickering, chief economist at Peel Hunt.
“Britain just needs the correct policies to get back on track, not complete institutional overhaul. It has fallen so far behind average in the things like basic infrastructure, housing and energy that merely catching up to the average for the advanced world would involve material living standards and productivity improvements.”
Indeed, until the past couple of years, Britain struggled with political stability. Now that it has some, investment has returned. Add a few bespoke trade deals, a plan to strengthen its comparative advantages and planning reforms — and things can only get better.
Dumitriu added: “If we stay good at what we’re good at and get less bad at what we’re very bad at, then the next decade could be a very good one for Britain.”
Thoughts? Rebuttals? Message me at freelunch@ft.com or on X @tejparikh90.
Food for thought
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