How Britain can seize the next decade

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Welcome readers. This week I’m backpacking in Vietnam and Laos, so I prepared something a little different.

As readers know, the goal of Free Lunch on Sunday is to present analysis that challenges conventional wisdom. For each section, this often involves discussing positions with economists and market strategists that are not necessarily their home views.

So for this issue, instead of 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 background. Labour’s large parliamentary majority means that the UK now stands out for its (relative) stability. France has an unstable coalition and Germany faces elections in February. Political views in the EU are divided. In the US, President Donald Trump seems more interested in stoking uncertainty.

As for trade disruptions, Britain’s specialization in services — and its position outside the EU — puts it less in the line of fire for Trump’s tariff plans. The American president is more focused on trade in goods, especially with China and the European trade bloc.

Labor has already eaten up this “stability dividend” to bulky, high-tax companies in its autumn budget. However, Marko Papić, chief strategist at BCA Research, believes that the autonomy Britain has from being less constrained by domestic politics and trade wars could be a boon:

“The UK should have an independent trade policy. The non-EU advantage will be reduced if the UK simply adopts the US attitude towards China. A multipolar world is one in which geopolitically promiscuous countries excel.”

Building this advantage would require a targeted approach to dealmaking. Agreements on trade in services could allow Britain to export its comparative advantage in high-value services further and more widely. And cutting red tape involved in trade with the EU, the UK’s biggest trading partner, would boost supply chains.

Less exposure to Trump is also why some of them Wall Street’s largest institutions they are betting that UK stocks will outperform stocks in the rest of Europe this year. They believe banks and energy companies — which have large stakes in the London Stock Exchange — could see a boost from Trump’s deregulation and pro-oil policies. Low values ​​also look attractive.

But UK stocks will still need a catalyst to boost share values. I asked Hugh Gimber, global market strategist at JPMorgan Asset Management, where that might come from:

“Over the past decade, developed market technology stocks have outperformed. But the UK is undernourished in this sector, making it almost impossible to keep up. If investors begin to find more evidence that AI-related capital investment will unlock productivity gains across the economy, we’d expect to see a wide range of sectors catch up to recent technology leadership. It would certainly help level the playing field for the UK.”

Indeed, Britain ranks third in Capital Economics’ index of advanced economies best able to benefit from the adoption of artificial intelligence, given its large services sector and flexible labor market.

Efforts to shed Britain’s huge pension holdings — the largest in Europe — could support greater investment in public and private stocks, both at home and abroad. But Gimber suggests there are better levers to pull:

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

Crucially, successful policy changes must create greater incentives for individuals and institutions to put money into working in the UK, by restoring confidence and removing barriers.”

Several studies suggest a reduction in stocks could increase revenues in the long run by stimulating growth.

And with public finances tight, “removing barriers” is where Sam Dumitriu, head of policy at Britain Remade, believes the UK can get the most bang for its buck.

“Britain’s bottleneck is building things. It is simply too difficult to build new homes in our most productive places, it is too difficult to build new energy infrastructure and it is too difficult to build new transport links. Hinkley Point C, which is expected to be the most expensive nuclear power station ever built, has involved a six-year dispute over turning on the ‘fish disk’.

We know what needs to be done. Reform the planning system so that it no longer effectively prohibits new investment in everything from homes to industry.”

The draft law on work planning and infrastructure is expected in the coming months. If it succeeds in streamlining regulations, speeding up approvals and freeing up more land for development, investment could soar.

The government’s industrial strategy, due to be published this spring, should reveal opportunities to attract private investment in key infrastructure projects. It is also expected to outline plans to strengthen Britain’s existing strength in high-demand growth sectors. 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 red tape, broader investment incentives, and improved access to training and high-skilled talent would help.)

That Britain does fairly well at these complex things, but struggles with simpler tasks, is cause for optimism, adds Kallum Pickering, chief economist at Peel Hunt.

“Britain just needs the right policies to get back on track, not a complete institutional overhaul. It is so far behind the average in things like basic infrastructure, housing and energy that just reaching the average for the advanced world would involve material living standards and productivity improvements.”

Indeed, until the last few years, Britain has struggled with political stability. Now that he has it, the investment has returned. Add in a few bespoke trade deals, a plan to strengthen comparative advantage and planning reforms — and things can only get better.

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

think? Rebuttals? Send me a message at [email protected] or on X @tejparikh90.

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