inequalityThere’s a killer on the road 
His brain is squirmin’ like a toad 

 

This week we focus on the UK and, in light of recent events, consider what might come next? This is clearly quite timely as todays (15-04) headline in the Sun is “Britain is Broken”; makes you wonder where they have been in recent years? 

 

In his dealings with Trump, Starmer has fared well, treading a sensible middle-line and keeping us away from the majority of the madness. And, much to everyone surprise last month GDP grew at an impressive 0.5%, and inflation fell. 

However, there is still the  overhang of balanced budgets straightjacketing our economic strategy, and of the latest round of austerity. It is reported that at least 80 Labour MPs are at risk of losing their majorities over proposed welfare cuts. 

The analysis suggests C.200 Labour MPs have a majority smaller than the number of recipients of personal independent payments (“PIP”) in their constituencies – a significant number in “red wall” seats. In addition, >80 Labour MPs have a majority which is smaller than the number of disabled people who could see their benefits cuts. 

MPs are organising campaigns to oppose welfare changes and stepping up coordinated action over the Easter recess, with a vote now expected in June. It is estimated that up to 50 MPs to vote against the changes.  

Cabinet and senior ministers are among those who have smaller majorities than the number of constituents expected to be affected by the changes. Including the justice secretary, Shabana Mahmood, and health secretary, Wes Streeting, as well as the safeguarding minister, Jess Phillips, education minister, Nia Griffith, and homelessness minister, Rushanara Ali. 

The list also includes high-profile MPs who are vulnerable to Reform, such as the Barnsley South MP, Stephanie Peacock, Rotherham MP, Sarah Champion, Kingston upon Hull East MP, Karl Turner, and Grimsby MP, Melanie Onn. 

Some MPs with healthy majorities could be at risk, the data shows. In Easington, where Grahame Morris has a majority of more than 6,000 over Reform, there are more than 12,600 Pip claimants. In Huddersfield, Harpreet Uppal has a majority of more than 4,500 over the Greens, but 9,387 Pip claimants. 

Reform and Farage are seeking to up the ante; speaking at a working men’s club in County Durham, he said: “Reform are parking their tanks on the lawns of the red wall. Today is the first day I’ve said that, but I absolutely mean it, and we’re here, and we’re here to stay. 

“If you are considering voting Conservative in these areas, you are wasting your vote, because if you want a party that can beat Labour, it is now very clearly Reform.” 

Much of Farage’s speech had echoes on Trump; Reform was replacing Labour as the party of working people, and would reindustrialise declining regions with support for industries linked to steel and fossil fuels. All very reminiscent of  Trump’s Republican’s taking traditional Democrat voters. 

 

‘Reform are parking their tanks on the lawns of the red wall’

 

Also in-line with Trump, were Farage’s constant reference to culture war references, including a condemnation of recruitment policies that he said disadvantaged white people.  

We see recruitment policies in police forces, recruitment policies in the NHS, designed to put ethnic minorities to the top of the list against white people with more history in this country,” Farage said, calling the situation “a disgrace”. 

He added: “We do not believe in DEI [diversity, equity and inclusion] and that madness in any way at all, but it’s all part of the north London human rights lawyers being completely out of touch with ordinary folk.” 

Much is made of Farage stealing Labour voters, but analysis shows that of the people who said they would vote Reform on 1 May, just 8% had backed Labour in the 2021 local elections, while nearly 40% voted Conservative. 

There is also the fact that Reform can be seen as untrustworthy on the NHS and friendly to Vladimir Putin. Whilst Farage seeks to play down the latter, referring to it as “the old Russia conspiracy theory”, it has substance. As one Labour aide said: “He can try to airbrush history as much as he likes, but he said those fawning things about Putin on the record, and they have aged very badly.” 

The red wall has become the political barometer for the country. This, of course, started with Brexit, and it would be interesting to hear what their thoughts are on that mistake. 

 

‘68% believed better relations with the EU would boost UK/EU trade in a clearly positive way’

 

A recent poll by Best for Britain found that 53% of voters now believe a closer relationship with the EU will have a positive effect on the UK economy, against just 13% who said the effect would be negative, there was no granularity to show what the red wall currently believes. In turn, 68% believed better relations with the EU would boost UK/EU trade in a clearly positive way. 

Asked what they believed Keir Starmer’s priorities should be for a UK-EU summit in May, the most popular answer was “trade between the UK and the EU”, which came out narrowly ahead of “illegal immigration across the channel” and, in third place, “improving the UK’s and EU’s defence and security”.  

Even among people who said they would consider voting for Reform UK at the next election, 48% said closer EU ties would have a positive impact on trade, with the same number saying it would make travel for Britons easier across Europe. This compares with 11% potential Reform voters who said it would have a negative impact on either. 

When voters were given 20 options and asked to choose four that the government should focus on improving, “the UK’s ability to sign new trade deals with the USA” came 17th. The cost of living came top, followed by immigration and asylum, the UK economy and economic growth, energy costs, UK defence, and trade between the UK and was EU in sixth place. 

The study also found that 62% understand that the government is seeking a closer relationship with the EU. Far more people also thought the government was not going far enough to rebuild ties (35%) than those who thought the current approach was correct (15%). Among Labour’s winning coalition at the last election, a clear majority believed the government 54% was not going far enough. 

As a result, UK politics are again changing. Trump’s unpopularity means that options for the Conservatives and Reform have narrowed, whereas Labour now have options he didn’t have 3-months ago.  PM Starmer can now plausibly claim we have a national crisis, and offer up the patriotic response.  

Recent independent economic analysis by Frontier Economics found that even in the face of Trump’s trade war, a commonsense deal with the EU that included deeper alignment on goods and services would secure economic growth of up to 1.5% to UK GDP, offsetting the impact of US tariffs completely for the UK and by a third for the EU. If we do nothing, their research suggests the impact of US tariffs will shrink UK GDP by 0.7%. Decision time? 

 

‘for too long, we have relied on America, when we should have been concentrating on Europe, who are our biggest trading partner, and allows us a voice, rather than just being taken for granted

 

Listening to the PM in recent weeks shows that he too has identified that we are in a “new era”, and one that offer opportunities that seemed unimaginable only a few months ago. Clearly, the electorate has also seen the opportunity that Europe offers. It isn’t just about correcting some of the mistakes caused by Brexit, it is the realisation that, for too long, we have relied on America, when we should have been concentrating on Europe, who are our biggest trading partner, and allows us a voice, rather than just being taken for granted. 

Alongside the PM, chancellor Reeves, also sees that Trump’s tariffs will have a “profound” effect on the UK and world economies, and that far-reaching changes to global trade and economic agreements are required as part of a strong international response. 

Whilst she admits to having “no illusion about the difficulties that lie ahead”, she realises that his actions are  economically damaging and will worsen the cost of living for many families. 

There appears to be a realisation that there can be a global trade reset on a new “more balanced global economic and trading system” that “recognises the benefits of free trade” over the kind of self-interest of the protectionist strategies employed by Trump. 

Rejecting the ideas of protectionism – now being aggressively promoted by Trump as his core economic policy – and backing the free trade alternative, she adds: “The Labour party is an internationalist party. We understand the benefits of free and fair trade and collaboration. Now is not the time to turn our backs on the world.” 

Trump and the US constantly overestimate their place in the world, as former PM Gordon Brown wrote; the “world is being brought to its knees by one economy, outside which live 96% of the population, who produce 84% of the world’s manufactured goods”. 

 

world is being brought to its knees by one economy, outside which live 96% of the population, who produce 84% of the world’s manufactured goods

 

Support is growing among economists for a new layer of trade agreements between leading economic powers, under the auspices of the World Trade Organization, but excluding the US for as long as it follows the protectionist route. 

An Opinium poll for the Observer showed that the electorate have their doubts about a UK-led Trump, with 34% of adults seeing the US as more of a threat than an ally, up from 16% in November last year, while those who have confidence in the US as an ally are just 35%. 

Despite Trump’s supposed affinity with the UK, over 50% of respondents believe he is not “a friend of Britain’s”. Only 16% of those polled believed he was trustworthy, against 64% who did not. 

The era of us being 51st state is coming to an end, there was never a special relationship with the US, we were stumbling around with our eyes wide shut.  

As part of this opportunity, there is an extended role for the state to play. The government seems to have finally got there with British Steel. 

In addition, ministers are expected to announce a multibillion-pound increase in government-backed financing, which will give UK Export Finance the power to expand financing support for British businesses by £20bn, with small businesses also able to access loans of up to £2m through the British Business Bank’s growth guarantee scheme. 

 

‘there was never a special relationship with the US, we were stumbling around with our eyes wide shut’

 

 

The business secretary, Jonathan Reynolds, said: “Within a changing world, we need to adapt, and as part of our plan for change, this government is responding.” 

This is merely endorsing the role the state has to play in difficult time. As we saw in previous crises such as the GFC and Covid, government needs to be interventionist.  

At the same time the strategy needs to move away from the redundant economic orthodoxies  it continues to be obsessed with. Again, the timing is ideal to ditch manifesto promises which were never intended to encounter such issues. This is not the time to blindly persist with fiscal rules to are already look national self-harm. 

The UK’s fiscal rules need to be relaxed due to the impending trade war emergency and the need for increased defence spending. Whilst, this isn’t possible in the short-terms as both bond and FX markets need to settle down, politically we can look to Germany to see how fiscal orthodoxy is no longer viable and the emergency allows, in principle, for bolder options. 

Trump, in trying to Make America Great Again, has inadvertently helped everyone else. This was summed up by George Saravelos, head of FX research at Deutsche Bank: “Even if the tariffs are permanently suspended, damage has been done to the economy via a permanent sense of unpredictability in policy. More structurally, the events of the last few weeks will resonate among global economic partners during the future negotiations on trade and indeed for many years to come. The desire to build greater strategic independence from the US across all fronts will be here to stay.” 

 

‘damage has been done to the economy via a permanent sense of unpredictability in policy’

 

The last week has shown that Trump isn’t the negotiator he believes he is, and, that under pressure, he will back-down.  

Trump, of course, is spinning his partial U-turn as a result of “these countries … calling me, kissing my ass”, as he bragged to a gathering of congressional Republicans on Tuesday night. These claims are just his malignant narcissism at play; it wasn’t the ass-kissing or deals that led to the U-turn, it was that investors and funds the world selling anything and everything linked to the US – including its sovereign debt. 

Some of Wall Street’s most influential figures were unconvinced by these claims, too. “I think we’re very close, if not in, a recession now,” Larry Fink, CEO of the investment giant BlackRock, told CNBC. Far from providing certainty, the 90-day pause on higher US tariffs on much of the world “means longer, more elevated uncertainty”, he added. 

Jamie Dimon, CEO of JPMorgan Chase, the US’s largest bank, said the world’s largest economy was facing “considerable turbulence” as a key measure of consumer confidence tumbled to its lowest level since the Covid-19 pandemic – and the second-lowest level on record. 

For a world seeking to bypass the US’s chaos and unpredictability, Europe is a viable alternative. Trump is once again guilty of over estimating the wrong things; the US may have a trade deficit, but the trust it bought to global trade was of great benefit to their economy.  

Claus Vistesen, of Pantheon Macroeconomics, summed this up thus: “there is no long-term credibility” with the US. 

Europe plays by the rules, and the longer Trump carries on causing chaos, he weakens the dollar, making the argument for it being replaced as the worlds reserve currency all the more convincing.  

The dollar is now at its lowest level in three years, in the space of a week, it lost about 3 cents against the pound and 4 cents against the euro. Yes, a weak dollar might suit Trump’s policies but the way he has gone about things, is fundamentally changing people’s perception of the dollar 

The damage has been done,” said George Saravelos, the head of foreign exchange research at Deutsche Bank. “The market is reassessing the structural attractiveness of the dollar as the world’s global reserve currency and is undergoing a process of rapid de-dollarisation.” 

Raghuram Rajan, a former governor of the Reserve Bank of India and an ex-chief economist at the International Monetary Fund, said: “There is a worry about how volatile and unpredictable US policy has become, as well as increasing fears that if the high level of tariffs are to stay, the US will head into a recession.”   

 

‘if the high level of tariffs are to stay, the US will head into a recession’

 

Within the dollars statues as the global reserve currency is that fact that the US Treasury market is widely considered to be the most important in the world because investors normally use it as the “risk free” benchmark to determine the price of every other financial asset. Which is why the past week, which has seen the sharpest weekly move in rates since 1982, the yield on 30-year US government bonds rose from about 4.4% to 4.8%, has added to Trump’s problems. 

In response to the dollar’s uncertain future, the EU in particular is looking at contingency plans. José Luis Escrivá, the governor of the Bank of Spain and a member of the European Central Bank’s governing council, told the FT the bloc could emerge as a more attractive alternative. 

We can offer a very large economic area and a solid currency, which benefit from the stability and predictability which result from sound economic policies and the rule of law.” 

Pascal Lamy, the former EU trade commissioner and ex-head of the World Trade Organization, also said Trump’s trade war could lead other countries to work more closely together: “The EU is the obvious candidate to rally a number of others. It won’t work if China does it or even if India does it. 

It is an American crisis. It’s not a global crisis. The US is 13% of world imports. But there is no reason for the 87% remaining to be contaminated by these voodoo economics.” 

It’s interesting to see the take of the Chinese Communist party’s (CCP) on Trump’s frequent claims of the US being “ripped off”, and of  China “hoodwinking the US public”: “The US is not getting ripped off by anybody. The problem is the US has been living beyond its means for decades. It consumes more than it produces. It has outsourced its manufacturing and borrowed money in order to have a higher standard of living than it’s entitled to based on its productivity. Rather than being ‘cheated’, the US has been taking a free ride on the globalisation train.” 

For the UK the situation is complex as our defence it intertwined with US support, making it difficult for Starmer to differentiate between trade and geopolitics. It is almost certain that, in any agreement on trade, the US will seek to include social media, their version of free speech which are all areas that we have an interest in defending. 

There is no need for an immediate pivot away from the US,  but we need align ourself with allies who understand the meaning of the word, and reduce our dependency on a country that now seems to hate democracy. 

‘we need align ourself with allies who understand the meaning of the word, and reduce our dependency on a country that now seems to hate democracy’

 

I will end with a question, has Trump overplayed the USA hand?  

He is pitching this as nations will be disrespecting his offer of trade with America, if they chose to deal with China instead. This is his greatest fear; his tariffs, which are designed to isolate China, fail if other nations see it in their interest to deal with whoever they want to deal with. If America choses America First, might not others countries put themselves first, too. 

 

 

“Are you a lucky little lady in the city of light 
Or just another lost angel, city of night 

 

 

‘Whilst, by recent standards the week has been quiet, there is much to consider.

At home, PM Starmer is in a very fortunate position. Trump has caused chaos, countries are facing a forthcoming economic crisis, giving leaders the opportunity to do the previously unthinkable.

China, Canada and the EU are all looking at alternatives to the US as potential trading partners.

Europe is finally facing-up to the fact that the US is no longer a trustworthy or viable partner for either trade or defence. Germany, as a result, has taken off the debt handbrake and is prepared to spend.

In the UK, PM Starmer has public support to re-engage with Europe, and the opportunity to provide targeted state support to develop a coherent industrial strategy.

The Tories are less credible with every passing day. The most vocal opposition is Reform, but then empty vessels make the most noise! The local election results will be an interesting test for them, Farage is still sounding like a Trump tribute act, and a few bigots aside, this might be his Achilles heel.

The LibDems will be interesting to watch, especially in what’s left of the Tory blue wall, where their anti-Trump message will be well received.

One Tory, or former Tory, that refuses to go away is Liz Truss, who has gone from laughable to totally insane, and is now preparing to launch her own social media platform championing free speech, as she warned the “deep state” and mainstream media were stifling freedom of expression in Britain.

Truss told a few other oddballs she was worried about how issues were “suppressed or promoted” by the mainstream media, appearing to compare Britain to communist Russia. “This is the kind of thing that we used to see going on in the Soviet Union and it’s now happening to us and it is absolutely shocking that that is the case in modern Britain.”

Trump, whilst he will unfortunately outlast a lettuce, is already looking at failure.

His economic policy, driven by tariffs, is already dissolving into a sea of indecision, U-turns and naked aggression. His attempts at bullying are failing as other countries prepare for the post-USA world. All of this puts the dollars role as the global reserve currency at risk, which will have a devastating impact on US debt.

His cuddling up to Russia and Israel has achieved nothing other than more misery and suffering in Ukraine and Gaza.

His DEI policies and assaults of the universities are being met with equal aggression.

Barack Obama has come out in support of Harvard after the Trump administration elected to cut $2bn of its federal grants after the Ivy League school in Massachusetts rejected what it said was an attempt at “government regulation” of the university.

Meanwhile, faculty at Yale University has asked its leadership “to resist and legally challenge any unlawful demands that threaten academic freedom and … self-governance”.

The standoff between some of the US’s most prestigious universities and the federal government has worsened after Harvard rejected elevated demands by Donald Trump’s administration, which the president has called an effort to curb antisemitism on campus. Many educators, however, see the demands as a thinly veiled effort to more broadly curb academic freedoms.

No government – regardless of which party is in power – should dictate what private universities can teach, whom they can admit and hire, and which areas of study and inquiry they can pursue,” Harvard’s president, Alan Garber, said.

The stated goal of the Trump administration’s antisemitism task force is to “root out antisemitic harassment in schools and on college campuses”. But many believe that is a cover for a range of conservative goals, including eliminating racial quotas in admissions – and resetting what the administration sees as a far-left bias in academia.

We are going to choke off the money to schools that aid the Marxist assault on our American heritage and on western civilization itself,” Trump said in 2023. “The days of subsidizing communist indoctrination in our colleges will soon be over.”

Everything else aside, this just looks like more indoctrinated economic folly. As the MIT president, Sally Kornbluth, commented on the fact that nine MIT students had seen their visas revoked over the previous week – revocations that she said would have a chilling effect on “top talent” worldwide and would “damage American competitiveness and scientific leadership for years to come”.

Domestically, the US appears riven with tension and divisions, and led by a president who is making things much worse. I fear this will end badly, and that day might not be that far away.

Musically, it is more self-indulgence. I have just rewatched Oliver Stone’s mediocre “The Doors”, and some of the scenes of protest and police repression as they fought against progressives in 1968-69, reminded me of what is starting to happen today. Then, as now, the touchpaper might be events on university campuses.

Jim Morrison, lead singer with the Doors was at the vanguard of events in the late 1960’s it remains to be seen who will take that mantle today. In tribute we feature two of my favourite Doors tracks, starting with “Riders on the Storm”, and ending with “LA Woman.”

Enjoy!

Philip.’

 

@coldwarsteve

 

Philip Gilbert 2Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

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