Make or break time: The UK and US face momentous days ahead

Two political events in the coming days are set to define the economic fortunes of the US and UK for years to come.

Tomorrow, Rachel Reeves will deliver the first Budget by a Labour Chancellor in a generation. The Government has been seeking to frame her speech as a pivotal moment that sets the tone for a decade of renewal since it was elected by a landslide in July.

Downing Street wants us to perceive this Budget in similar terms to Gordon Brown’s Budget of 1997 or the 2010 Austerity Budget of George Osborne. This is their opportunity to make the political weather. 

Keir Starmer admits that improving public services at a time of weak state finances means tough choices to get Britain growing again. Hikes to employers’ NI contributions, freezing tax thresholds and changes to Capital Gains Tax are just some of the measures that have been heavily trailed.

But the lengthy speculation ahead of tomorrow has shaken sentiment. Labour’s spin doctors need to square the circle that the harsh reality of tax rises needs to be tempered with hope. Doom and gloom on their own won’t cut it.  

Then there’s the issue of UK debt and the bond markets. Their damning verdict on the fiscal arithmetic of the Autumn 2022 Budget helped to end Liz Truss’ premiership within a matter of weeks. It’s true to say that in recent weeks gilt yields have been rising, raising the costs of UK government borrowing.

Next week the US Presidential election race reaches a climax. In my view the outcome of that political struggle could be as, if not more consequential for the course of Britain’s long-term economic future.

Despite the Trump and Harris campaigns spending collectively more than $2 billion in advertising to persuade the American electorate, the polls show both candidates to be neck and neck.    

The long-term collapse of public trust is a phenomenon on both sides of the Atlantic. The polarised nature of American politics appears to have shredded a shared sense of reality. Disinformation also thrives in the echo chamber of social media.

In recent days there has been a flurry of commentary on why despite all this uncertainty and wars in both Ukraine and the Middle East investors continue to remain bullish. Are we collectively ignoring these risks at our peril?

Only last week, the International Monetary Fund warned global markets not to be complacent about the threat of conflict in these troubled times.

If Donald Trump does succeed in winning a second term of office in the White House, his promise to introduce high tariffs on trade with China as well as the rest of the world could well be the defining reality for the UK economy.  

The US is the UK’s single largest export market. If the rhetoric is to be believed, a second Trump Presidency promises to put a policy of protectionism at its core with a 10% universal tariff on all imports. His key arguments are they encourage domestic manufacturing, create revenue and support national security.  

Tariffs bring higher prices and push up inflation. The market calm seen so far belies the sense of tension and the scale of upheaval that lies ahead. It’s make or break time.