From the announcement of plans to build London’s biggest office block to the relief that greeted the government’s retreat on employment rights, there was evidence last week that business in Britain is not all doom and gloom.
Jamie Dimon, JP Morgan chief executive, said the UK government’s emphasis on growth had been a “critical factor” in the bank’s decision to build a new 3m sq ft tower in Canary Wharf – the bank’s most significant presence in Europe. Goldman Sachs announced after the budget that it would more than double its headcount in Birmingham and increase its financing of AI and digital infrastructure.
The banks had reason to be grateful as the sector escaped higher taxes, and the expansion followed announcements by Microsoft, Google and others that they would invest billions in AI and datacentres in the UK, including a UK version of the Stargate infrastructure project. The UK government has also indicated its commitment to tech with a promise to spend £100m buying emerging chip technology from British start-ups.
The glass may be half full but the UK has been buoyed by global economic and political currents: an entente between Keir Starmer and Donald Trump helped minimise the impact of tariffs and has driven some investment. The FTSE is up 17% so far this year, close to an all-time high.
The reaction last week was muted. The bond market remained calm, businesses were largely quiet. The CBI’s director general, Rain Newton-Smith, offered praise for protecting capital spending but described it as a “missed opportunity to be bold”.
The UK economy still faces genuine challenges, from low productivity growth to global uncertainty, particularly around trade. But it also has strengths, including a flexible labour market – reinforced by dropping the one-day qualifying period for unfair dismissal (which will now be six months) – and an improving fiscal position. The revelation that public finances were better than the chancellor warned in the run-up to the budget is a political mess, but an economic silver lining.
Unemployment has edged higher, to 5% in the last quarter, but the number of people working is much higher than on the eve of Covid. Inflation is falling, though still above the Bank of England target, and the budget should make have an effect on making it fall further.
The economy faces challenges, from low productivity to global uncertainty, but it also has strengths
For the world’s mobile ultra-rich, global currents are also shifting. Reeves limited the inheritance tax payable by former non-doms, changing this from 6% every 10 years to bring in a cap of £5m on trusts created before last year’s budget.
The softening of Britain’s position on the global 1% comes as Italy debated raising tax on wealthy foreigners, while the Swiss voted this weekend in a referendum on an inheritance tax proposal aimed at super-rich foreign residents.
In an effort to shore up London’s position as a financial hub, the chancellor waived stamp duty on newly listed UK companies for up to three years after they list. Julia Hoggett, chief executive of the London Stock Exchange, said this measure, combined with exempting Pisces – new platforms for trading private company shares – from stamp duty, “sends the right signal that the UK is backing its markets”.
After a dire start to the year for new listings in London, there have been indications of momentum in the past few months, with the initial public offerings of small business lender Shawbrook, the food company Princes and a smaller debut from the LED light-mask maker the Beauty Tech Group. But the first half was spectacularly bad: IPO fundraising in London dropped to £160m, the lowest level since 1995, according to data gathered by Dealogic. A shift by investors away from tech has flattered the FTSE, which is dominated by banks and consumer goods companies. Lloyds Banking Group’s stock is up more than 75% this year, while NatWest is up 57%.
Long-term business confidence will depend on the outcome of reforms aimed at making it easier to build housing and infrastructure, along with new capital investment.
Allianz’s chief economic adviser, Mohamed El-Erian, said initial market reaction to the budget was favourable, but the “benefit of the doubt... is not likely to last if implementation falters and growth continues to flatline”.
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