As America booms, Britain’s economy is sliding
Returning from yet another global junket, this time to Rio de Janeiro, the Prime Minister seems just as remote from reality as his Labour predecessor appeared during the Winter of Discontent. Jim Callaghan’s complacent attitude gave rise to the notorious tabloid headline: “Crisis? What crisis?” Sir Keir Starmer seems equally oblivious of his own predicament.
Indeed, the dire state of the British economy is already reminiscent of the 1970s. Sir Keir was elected with a promise to prioritise growth over everything else, but since July the economy has stalled and by now may well be in recession. The PMI survey of business activity shows that output this month has fallen to a 13-month low – only one of many indicators that have hit business confidence and caused the pound to slump against the dollar.
Much of the blame may be laid at the door of Rachel Reeves, whose Budget imposed huge tax rises on already overburdened employers. Farmers marching on Westminster to protest against the existential threat of inheritance tax are only the most visible alarm signal. Retailers such as Tesco, M&S and Sainsbury’s have taken the unusual step of writing to the Chancellor to warn that her national insurance hike will mean job cuts, price rises and shop closures. The Christmas season is make-or-break time for the retail and hospitality sectors, but their only prospect is a bleak midwinter.
Meanwhile, across the Atlantic it is a very different story. Not only is Wall Street booming, but the omens are good for the US economy as a whole. The decisive election victory of Donald Trump has unleashed the entrepreneurial energies of America. Not even the threat of tariff wars with China and Europe has dampened what John Maynard Keynes called the “animal spirits”, the “spontaneous optimism” of the world’s greatest engine of prosperity.
Even in Latin America the spirit of enterprise is stirring. Javier Milei, the president of Argentina, is driving through his own version of the Thatcher-Reagan revolution. Rejecting the disastrous legacies of socialism and Peronism, Milei is a disciple of free market economists such as Hayek and Friedman. In less than a year, he has already brought inflation under control, deregulated much of the economy and cut government bureaucracy to produce a budget surplus. By abolishing rent controls, he has increased the supply and cut the cost of housing. Milei’s medicine is working.
Here, such ideas are seen as heretical by the Labour Party. But if the British economy continues to tank, even Rachel Reeves will be forced to embrace the free market – or make way for a Chancellor who is a real economist.