US President Trump is not coming empty-handed for his visit to the UK - American companies will invest billions in the island. And the British economy urgently needs them, writes ARD.
The impressive welcome of US President Donald Trump at Windsor Castle clearly also has economic dimensions - with a large scale of hospitality, Britain wants to flatter its most important trading partner, writes the German public media ARD.
The British economy seems to depend on this, because it has been in a difficult situation for some time. What is its current state? Official data from last week paint a gloomy picture: in July, gross domestic product (GDP) stopped growing, while in June there was still a growth of 0.4%. British Prime Minister Keir Starmer's Labour Party promised annual growth of 2.5% in its election campaign. There are also problems in the labor market: unemployment is 4.7%, the highest level in four years.
Tax hikes as a way out of the crisis?
Tax hikes are being discussed to fill the budget hole. According to the National Institute for Economic and Social Research (NIESR), the deficit in August was nearly 50 billion pounds. However, Chancellor of the Exchequer Rachel Reeves rejected this estimate.
Growth in the UK has been weak since the financial crisis. According to the ONS, average economic growth has fallen from around 3% between 1993 and 2007 to just 1.5% between 2009 and 2023. Many economists attribute this trend to low labor productivity, which has fallen more in the UK than in the US, Germany or France.
This is believed to be due to low investment in new facilities, as well as in research and development. Added to this are large regional differences: as early as 2019, productivity in London was around 50% higher than the national average. If the capital were excluded from the calculations, living standards would fall by 14%. This would put the UK behind Mississippi, the weakest state in the US in economic terms, the ARD points out.
Tariff negotiations and investment
In this regard, many Britons will probably consider the visit of the US president, during which several US technology giants announced investments worth billions, a success. In the coming years, companies such as „Microsoft“ and „Google“ plan to invest a total of around $42 billion in British artificial intelligence infrastructure.
The US is the UK's most important trading partner - 22.5% of exports go to the US. Trade between the two countries last year amounted to around €370 billion.
Even more significant are the ongoing negotiations on import tariffs, which Trump announced in April for many countries. Currently, British goods are subject to a basic duty of 10%, and steel exports are taxed at 25%. However, hopes for a reduction in these fees are fading.
Inflation remains a worrying factor
The continued high level of inflation is also a concern, explains the ARD: Britain has the highest inflation rate among industrial countries. Consumer prices rose by an average of 3.8 percent in August compared to the same month last year, according to data from the Statistics Office in London. For comparison: inflation in the US is 2.9%, and in the eurozone - 2.0%.
The new data reinforces expectations that the British central bank will not lower its main interest rate for the time being. The Bank of England, which is due to announce its decision on the main interest rate tomorrow (Friday, September 19), expects inflation to reach its highest level in September - 4%, twice the 2% target. Central bankers face a dilemma: although the British labor market has weakened, it continues to put upward pressure on prices. Wage growth has slowed, but at 4.8% for basic wages, it remains too high for the Central Bank.
Consequences of Brexit
Many observers attribute the weak growth in recent years to Brexit. Since the UK left the EU at the end of January 2020 and will finally leave the customs union and the internal market in 2021, new bureaucracy and trade barriers have weighed on the economy - despite a free trade agreement that was later concluded.
The negative effects of the trade agreement have intensified over time, with 2023 seeing a sharper decline in trade than in previous years,“ said a 2024 report by Aston University in Birmingham. Smaller British exporters in particular have been reluctant to trade with the EU. This has also affected exports: between 2021 and 2023 - the years immediately after Britain left the customs union and the EU internal market - British exports of goods to the EU fell by 27%, and imports by 32%.
The decline in trade is also affecting Britons in their everyday lives - many goods are now more expensive. A Dutch trader even spoke of the “price of Brexit“ that the British are paying, and that many consumers in the UK are feeling, the ARD publication also says.
Author: Antonia Mannweiler ARD