ALEX BRUMMER: Business Drives UK Growth
By Alex Brummer for the Daily Mail
Updated: 21:52 BST, 29 September 2023
Wishful thinking: Chancellor Jeremy Hunt
Resilience is becoming an overused word when it comes to the UK economy. Despite a rising tax burden and 14 interest rate hikes since December 2021, the UK economy continues to defy the odds.
Boosted by business investment, the latest output data has revised up growth in the first quarter from 0.1% to 0.3%, and confirms a 0.2% rise in the three months to June.
While it may not be booming, the UK’s growth rate of 1.8% since 2019 surpasses that of France and outperforms Germany since the pandemic. Labour’s claims that Britain is at the bottom of the G7 growth league have backfired.
Critics will argue that the US has achieved stronger outcomes. Both Donald Trump and Joe Biden implemented fiscal measures reminiscent of the New Deal in the 1930s. This is why Washington faced the threat of a government shutdown over the weekend. Additionally, American consumers have been more willing to spend their Covid-19 savings compared to Europeans, as indicated by recent research from the European Central Bank.
One standout aspect of the UK’s expansion is the continued revival of business investment, which has been upgraded to 4.1% from 3.4% in the second quarter. This may partly be attributed to Rishi Sunak’s ‘double deduction’ for capital investment, which ended on March 31. However, it should not be forgotten that Jeremy Hunt has replaced it with a full write-off of capital investment costs as an incentive for the increase in the headline corporation tax from 19% to 25%. Business investment rose by an impressive 9.2% over the year to June, showcasing the continued confidence in the UK economy.
Maintaining output momentum is challenging considering the headwinds from fiscal drag and higher mortgage and borrowing costs. However, the housing market, a significant driver of consumer spending in the UK, is experiencing some resilience. Mortgage lending was surprisingly strong in August, and although mortgage approvals have decreased slightly, they have not plummeted.
A stronger economy will require the Office for Budget Responsibility to reevaluate its projections ahead of the autumn statement. While the shifting dynamics in Downing Street may have impacted the UK’s reputation, they have not inhibited the much-needed revival in business investment.
China Syndrome
Sherard Cowper-Coles is stepping down as the head of HSBC’s corporate affairs following his ill-considered comments about the UK’s weakness in restricting dealings with China. With extensive diplomatic experience in Afghanistan and Israel, Cowper-Coles should have exercised more discretion.
Interestingly, HSBC continues to focus on expanding its presence in China. The bank prefers to maintain a relatively low profile when it comes to its relationship with China, emphasizing the long-standing historical connections rather than the recent decade.
However, Western economies and the International Monetary Fund are increasingly finding China to be a challenge. This is evident in the standoff over a rescue package for Sri Lanka. The country’s GDP fell by 9% over the past year, and an emergency IMF loan of $300 million was set to be implemented on September 27 but fell apart due to China’s obstinacy. The loan was conditional on Sri Lanka restructuring its debt, which would require China to accept a reduction in its official lending, an offer it refused. India has expressed willingness to step in, but China now regards India as a genuine regional rival. As poverty worsens in Sri Lanka, geopolitics takes center stage.
Saharan Heat
Climate change activists adamantly oppose the licensing of the Rosebank oilfield off Shetland, arguing that it undermines the UK’s efforts to achieve net zero emissions. However, the government is pursuing a two-track approach. This is exemplified by the decision to proceed with a plan to bring solar and wind power from the Moroccan Sahara to Cornwall through an undersea cable.
The project, spearheaded by former Tesco boss Dave Lewis, aims to provide enough power for 7 million homes and meet 8% of the UK’s energy needs.
The timing of this project is favorable, following the recent devastating earthquake and ahead of the upcoming IMF meeting in Marrakesh next month (OCT).
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