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Welcome readers. I’m backpacking in Vietnam and Laos this week, so I prepared something a little different.
As readers know, the goal of Free Lunch on Sunday is analysis that belies conventional wisdom. For each piece, this often involves discussing positions with economists and market strategists that are not necessarily their house view.
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 outline a bullish scenario for the UK economy over the next decade and what it would take to get there. Here’s what they said.
First, the global setting. Labour’s large parliamentary majority means Britain 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 fragmented. In the US, President Donald Trump seems more interested in promoting uncertainty.
In terms of trade disruption, Britain’s specialism in services – and position outside the EU – puts it less in line with Trump’s tariff plans. The US President is more focused on trade in goods, especially China and the European trading point.
Labor has already eaten into this “stability dividend” by splashing out on high taxes in the autumn budget. Still, Marko Papic, chief strategist at BCA Research, believes that Britain’s autonomy, with less holding back by internal politics and trade wars, could be a boon:
“Britain should pursue an independent trade policy. The advantage of being outside the EU will diminish if the UK simply adopts an American stance towards China. A multipolar world is one in which geopolitically promiscuous countries outperform. “
Building on this advantage would require a targeted approach to strike contracts. Offers on trade in services could allow Britain to export its comparative advantage in high-quality services further and more widely. And reducing the red tape involved in trading with the EU, Britain’s largest trading partner, would boost supply chains.
Less Trump exposure is also why some of Wall Street’s largest institutions Bet UK stocks will outperform the rest of Europe this year. They believe banks and energy companies that have large weights on the London Stock Exchange could take a boost from Trump’s deregulation and pro-oil policies. Low valuations also look attractive.
However, UK stocks will still need a catalyst to drive equity values forward. I asked Hugh Gimber, Global Market Strategist at JPMorgan Asset Management, where it came from:
“Over the past decade, developed market technology stocks have outperformed. But the UK is underweight in this sector, making it almost impossible to keep up. As investors find more evidence that AI-related CAPEx is set to unlock productivity gains across the economy, we would expect a wide range of sectors to catch up with recent tech leadership. This would certainly help level the playing field for the UK. “
In fact, the UK ranks third in the advanced economies index of the capital economy best benefiting from AI adoption, given its large service and flexible labor market.
Efforts to ease pressure on Britain’s vast pension capital – the largest in Europe – could support more investment in public and private stocks at home and abroad. But Gimber suggests there are better levers to pull:
“Stock trading taxes raised £3.2bn in the last financial year, but for stock markets these transaction costs put them at a clear competitive disadvantage compared to other regions. Not only does it apply to retail investor participation, but it also reduces the incentives for new companies to list in the UK.
Crucial policy changes must create greater incentives for both individuals and institutions to put money to work in the UK, by restoring trust and removing barriers. “
Some studies suggest could increase revenue in the long term by increasing growth.
With public finances tight, Sam Dumitriu, UK’s head of policy, believes Britain can get the biggest bang for its buck.
“Britain’s bottleneck is building things. 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 transportation connections. Hinkley Point C, said to be the most expensive nuclear power plant ever, has been in a six-year dispute over the Inclusion of a “fish disco”.
We know what needs to be done. Reform the planning system so that it no longer prohibits new investment in everything from houses 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, the investment could jump.
The government’s industrial strategy, due to be published this spring, aims to provide the opportunity to push private investment into key infrastructure projects. It will also set out plans to enhance the UK’s existing strengths in the high-demand growth sector. These include financial and professional services, university research and education, renewable energy (wind, carbon capture and storage), life sciences, aerospace technology, artificial intelligence and creative industries. (Less bureaucracy, broader investment incentives, and improved access to training and high-quality talent would all help.)
That Britain does these complex things quite well but struggles with simpler tasks is reason to be optimistic, adds Kallum Pickering, chief economist at Peel Hunt.
“The UK just needs the right policies to get back on track, not an institutional overhaul. It has fallen so far behind the average in things like basic infrastructure, housing and energy that are merely catching up with the average for the advanced world to catch up with material living standards and productivity improvements. “
Indeed, Britain struggled with political stability until recent years. Now that it has some, the investment has returned. Add a few tailored trade deals, a plan to strengthen comparative advantage and planning reforms – and things can only get better.
Dumitriu added: “If we remain good at what we are good at and less bad at what we are very bad at, the next decade could be very good for Britain.”
Thoughts? Refutation? Message me freelunch@ft.com or on x @Teapperikh90.
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