How Britain can seize the next decade

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Hello readers. I’m traveling to Vietnam and Laos this week, so I prepared something a little different.

As readers know, the goal of Free Sunday Lunch is to provide analysis that flies in the face of conventional wisdom. For each piece, this often involves discussing positions with economists and market strategists that do not necessarily reflect their internal view.

So, in this edition, instead of the usual synthesis of my findings, I wanted to share with you more of what the analysts told me. I asked experts to chart a bullish scenario for the UK economy over the next decade, and what it would take to make it happen. Here’s what they said.

First, the global background. Labour’s large parliamentary majority means that the UK is now (relatively) stable. France has an unstable coalition, and Germany faces elections in February. Political views in the European Union are fragmented. In the United States, President Donald Trump seems more interested in creating uncertainty.

As for disrupting trade, Britain’s specialization in services – and its location outside the European Union – makes it less vulnerable to the fire of Trump’s tariff plans. The US President is focusing more on trade in goods, especially with China and the European trading bloc.

Labor has already used up this “stability dividend” by burdening companies with high taxes in its autumn budget. However, Marko Babic, chief strategist at BCA Research, believes Britain’s autonomy from being less constrained by domestic politics and trade wars could be a blessing:

“The UK must pursue an independent trade policy. The advantage of remaining outside the EU will diminish if the UK simply adopts a US position on China. A multipolar world is one in which geopolitically heterogeneous states excel.

Building on this advantage will require a more agreement-oriented approach. Services trade deals could allow Britain to export its comparative advantage in high-value services further and on a larger scale. Reducing the red tape involved in trading with the European Union, the UK’s largest trading partner, would strengthen supply chains.

Less exposure to Trump is also why some of Wall Street’s biggest institutions are betting that British stocks will outperform the rest of European stocks this year. They believe banks and energy companies – which have significant weightings on the London Stock Exchange – could see a boost from Trump’s deregulation and pro-oil policies. Low valuations also look attractive.

But British stocks will still need a catalyst to raise the value of shares. I asked Hugh Gimber, global market strategist at JPMorgan Asset Management, where it might come from:

“Over the past decade, technology stocks in developed markets have outperformed. But the UK is underweight in this sector, making it almost impossible to keep up. If investors start to find more evidence that intelligence-related capital expenditure “If artificial technology is expected to unleash productivity gains across the economy, we expect to see a wide range of sectors play a role in catching up to the modern technological lead and this would certainly help level the playing field in the UK.”

In fact, Britain ranks third in the Capital Economics index of advanced economies most able to benefit from AI adoption, given its huge services sector and flexible labor market.

Efforts to free up Britain’s huge pension capital – the largest in Europe – could support more public and private equity investment, both at home and abroad. But Gember suggests there are better tools to pull:

“Stamp duty taxes on share trading raised £3.2 billion in the last financial year, but for the stock market, these transaction costs represent a clear competitive disadvantage compared to other regions. It applies not only to the participation of retail investors, but also reduces incentives For new companies to list in the UK.

It is crucial that successful policy changes create greater incentives for individuals and institutions alike to operate money in the UK, whether through restoring confidence or removing obstacles.

Some studies suggest that reducing stamp duty on shares can lead to higher revenues in the long term by promoting growth.

With public finances tight, “removing the hurdles” is where Sam Dumitriu, head of policy at British Remedy, believes the UK can get the most bang for its buck.

“Britain’s bottleneck is building things. It’s very difficult to build new housing in our most productive places, it’s very difficult to build new energy infrastructure, it’s very difficult to build new transport lines. Hinkley Point C, which is set to be more expensive The largest nuclear power plant ever built has been embroiled in a six-year dispute over… Insert “disco fish”.

We know what to do. Reform the planning system so that it does not in effect ban new investment in everything from homes to industry.

The draft planning and infrastructure law is expected to be issued in the coming months. If you can simplify regulations, speed up approvals, and free up more land for development, investment could jump.

The government’s industrial strategy, due to be published this spring, is set to reveal opportunities to mobilize private investment in key infrastructure projects. It is also supposed to outline plans to bolster Britain’s existing strengths in high-demand growth sectors. These include financial and professional services, university research and education, renewables (wind energy, carbon capture and storage), life sciences, aerospace technology, artificial intelligence, and creative industries. (It is useful to reduce red tape, expand investment incentives, and improve access to training and highly skilled talent.)

Callum Pickering, chief economist at Bell Hunt, adds that Britain doing these complex matters well, but struggling with simpler tasks, is reason for optimism.

“Britain just needs the right policies to get back on track, not complete institutional reform. It has so far fallen behind the average on things like basic infrastructure, housing and energy, for which just catching up with the developed world average would require material living standards and improvements in yield.

Indeed, until the past two years, Britain was struggling for political stability. Now that some of that has been achieved, investment has returned. Add to that some detailed trade deals, a plan to strengthen its comparative advantages and planning reforms – and things get better.

Dumitriu added: “If we stay good at what we are good at, and less bad at what we are good at, the next decade could be a very good decade for Britain.”

ideas? Refutation? Email me at freelunch@ft.com or at X @tejparikh90.

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