{"id":5483,"date":"2023-07-08T20:33:47","date_gmt":"2023-07-08T20:33:47","guid":{"rendered":"https:\/\/www.horsesforsources.com\/?p=5483"},"modified":"2024-09-11T11:19:02","modified_gmt":"2024-09-11T11:19:02","slug":"brand-britain-on-the-brink_070823","status":"publish","type":"post","link":"https:\/\/www.horsesforsources.com\/brand-britain-on-the-brink_070823\/","title":{"rendered":"Why Brand Britain is on the brink…"},"content":{"rendered":"
You’ve probably completely forgotten that London was the world’s vibrant financial center in 2016… oh how times have changed.<\/p>\n
Despite some glimmers of positive economic news in recent months, the UK economy really is now teetering on the brink of a recession, with even a nervous Rishi Sunak warning of its inevitability, at a time when his slim re-election hopes will surely be left in tatters if it cannot be avoided.\u00a0 However, this fall from grace cuts much deeper than a cyclical<\/em> economic recession:\u00a0 Britain has lost its luster as a place major economies want to invest, where the world’s best talent wants to work, where the world’s business leaders even want to visit<\/em> anymore.<\/p>\n Britain needs to convince the world it should take big bets again in its potential, as today, “Brand Britain” is circling the drain. Only a unified and focused government, real structural economic reforms, and smart investments can save this once-great economic powerhouse from decades of purgatory from which it may never recover its former glory.<\/p>\n UK is mired in deep-rooted economic, social, and political challenges<\/strong><\/p>\n With the UK’s latest hike in interest rates squeezing whatever life was left in 2 million homeowners, rampant double-digit inflation that is barely flattening, some of Europe’s most costly energy costs, wave after wave of strikes impacting every corner of society, and a desperate shortage of low-income labor to keep the wheels of the economy and health service barely functioning.\u00a0 Britain has completely lost its economic mojo, with its economy 7% smaller than pre-COVID levels and a confused public wondering what happened to all the heady “benefits” of leaving the EU.<\/p>\n And while the latest reversal by the IMF indicates that the UK will no longer stand alone as the only advanced economy shrinking this year, its projected growth rate of 0.4% still raises concerns\u2014much as the EU found out recently, it’s not impossible to slip into a technical recession, even with rose-tinted predictions.<\/p>\n The erratic nature of economic predictions has become a defining feature of the volatile early 2020s, taking over from the Great Stagnation that preceded it.\u00a0 In short, we’ve become used<\/em> to chaos, and the ongoing assault on everything that used to seem stable is now the norm… from pandemics to rioting, from nuclear war to energy crises, and even the national water supplier about to go bust. In short, the UK faces deep-rooted economic, social, and political challenges.<\/p>\n The UK economy post-Brexit: Death by a thousand cuts\u00a0<\/strong><\/p>\n Several systemic challenges that foreshadow long-term economic troubles lie at the core of the UK’s problems. The most significant remains the persistently uncertain relationship with Europe after Brexit. Nine years have passed since the referendum, yet the UK government remains ill-prepared and arguably unfocused on the mounting political, logistical, financial, and economic obstacles that lie ahead.<\/p>\n For instance, some of the world’s largest car manufacturers recently\u00a0warned the British government<\/a>\u00a0that they may need to renegotiate the Brexit deal to avoid factory closures and job losses. They highlighted the practical impact of the “rules of origin” outlined in the Trade and Cooperation Agreement (TCA) signed between London and Brussels in 2020. These rules entail imposing 10% tariffs on cars not meeting the specified percentage of components manufactured in the UK or EU. Leading automakers argue that this provision would render manufacturing electric vehicles in the UK economically unviable.<\/p>\n Vauxhall manufacturer, Stellantis expressed concerns about its ability to honor its commitment to producing electric vehicles in Britain without changes to the agreement. Ford referred to the rules as a “pointless cost,” while Jaguar Land Rover, the largest automotive employer in the UK, labeled the timing of the new regulations as “unrealistic.” (Despite this, JLR plans to launch a new battery factory<\/a> in the UK, choosing somerset over Spain).<\/p>\n Such complaints from manufacturers are not new to the political landscape; in 2016, industry leaders warned that a poorly executed departure from the EU would result in a\u00a0“death by a thousand cuts,”<\/a>\u00a0with the UK drowning in red tape and facing increased costs. Despite these prescient warnings and almost a decade to find solutions, the UK government has made relatively little progress.<\/p>\n Major capital investments from traditional economic and political partners are going elsewhere<\/strong><\/p>\n The repercussions of the UK’s economic challenges extend beyond the automotive sector. Capital earmarked for the UK is now finding more welcoming homes elsewhere. Germany recorded its highest level of foreign direct investment last year, amounting to \u20ac25.3 billion\u2014a staggering 261% increase from the \u20ac7 billion seen during the pandemic-hit 2021. The bulk of this investment comes from the US, as American companies seek to establish a presence in Europe while looking beyond the UK.<\/p>\n Apart from Brexit-related issues, a depleted financial arsenal has hampered the UK’s ability to compete with its economic counterparts. As a diminished economic power, it is ill-prepared to rival the generous cash incentives the US and EU offer. A telling example is the recent surge in\u00a0support for domestic semiconductor industries<\/a>, which have become a battleground between the US and China. The US and EU have dedicated war chests of $52 billion and $46 billion, respectively, to bolster and expand their domestic industries. In contrast, the UK has cobbled together a measly $1.2 billion.<\/p>\n But even this relatively modest sum, if properly allocated to areas where the UK possesses a competitive advantage (such as semiconductor design, intellectual property, compound semiconductors, and research and innovation), could be beneficial in helping the UK maintain a robust economic position. However, it highlights the diminished stature of the UK outside the EU and the limited leverage it possesses to compete with the generosity of other economic powers.<\/p>\n The power of the US and EU leaves an isolated Britain floundering<\/strong><\/p>\n Indeed, the Inflation Reduction Act in the US is already turning heads in the UK. And the EU’s similarly compelling state aid rules are dialing up the pressure from the other side of the English Channel. According to a hydrogen- and battery-powered truck manufacturer,<\/a>\u00a0they can pocket an extra $113,000 more in subsidies for each truck they build in the EU, compared to the UK.<\/p>\n Similarly, the\u00a0UK lithium industry is pushing the UK government to take action<\/a> to strengthen the country’s supply chains in response to the US Inflation Reduction Act and the EU’s Critical Raw Materials Act (CRMA) and Net Zero Industries Act (NVIA). According to industry insiders, many battery producers plan to ditch the UK in favor of the US or EU unless they do something to make the current domestic environment more attractive. But it’s difficult to see how the UK can rustle up the funds to compete with the aid packages across the Atlantic or the Channel.<\/p>\n Securing more funding will come at a cost, given increasing interest rates. And with a debt-to-GDP ratio approaching 100%, there isn’t much room for maneuver. Indeed, the likely-soon-to-be-in-power Labour Party has already started to shrink its flagship \u00a328bn green plan<\/a> for fears of seeming out of touch with the economic realities of modern Britain.<\/p>\n