The Bank of England and America’s Federal Reserve both cut their interest rates yesterday by 0.25 per cent. But no one should think for a moment that our two countries are on the same economic track: far from it.
The grim reality is that fiscal policy in the United States and Britain has never been more opposed, with Keir Starmer‘s government and Donald Trump‘s incoming administration heading in utterly different directions.
Just hours after the vote, and before he even enters the Oval Office, Trump has enriched millions of Americans, with the stock market soaring to record highs at the result and bitcoin prices surging – leaving the median American several thousand dollars richer, at least on paper.
To use his own phrase, Trump’s first term was something of a ‘golden age’ for ordinary Americans especially. The bottom 50 per cent saw their net worth soar by 127 per cent between January 2017 and January 2021 – compared to a miserly 8.5 per cent under Joe Biden.
But if The Donald’s clear record is of making his countrymen richer, Starmer’s doom-laden rhetoric and soaring tax rises have made many Britons feel considerably poorer since our election in July.
It’s bad enough that our Foreign Secretary, David Lammy, has called the incoming president ‘a KKK and neo-Nazi sympathiser’, while others on the front bench have been equally rude and hysterical.
In some ways, it’s even worse that Chancellor Rachel Reeves has just embarked on an economic course completely at odds with the ‘Trumponomics’ we will see across the Atlantic for the next four years.
Reeves’s preferred economic guru is the current US Treasury Secretary Janet Yellen, an avowed big-spending Democrat and one of the authors of the ‘Bidenomics’ to which the UK’s Chancellor has pinned her ensign.
Trump, meanwhile, is a true centre-Right believer in the magic of the markets – having seen the evidence for himself over decades that low taxes on income, enterprise and corporations are the real route to prosperity and higher living standards, not an overweening Big State taxing people to the hilt and choosing how to distribute the receipts.
It is no accident that Trump’s ‘brains trust’ of top economists includes Arthur Laffer, the man behind the celebrated ‘Laffer Curve’, which holds that high tax rates sharply reduce the overall government tax take: the calculation that inspired Ronald Reagan’s free-market revolution of the 1980s.
Labour’s recent budget foolishly and, it turns out, prematurely sought to copy Biden’s view that big government can fix anything. Biden’s grossly misnamed US Inflation Reduction Act, which threw tens of billions of dollars at an elaborate climate change agenda, is among the reasons that the Democrats received such a hammering in the presidential and Congressional elections on Tuesday.
The sugar rush of federal spending may have temporarily boosted America’s growth rates by 2.7 per cent in the third quarter of this year, but it palpably failed to tame the beast of inflation – felt by millions of Americans whenever they put petrol in their cars, buy their groceries or pay their bills.
There could not be a starker difference between Trump’s approach and the top-down, statist ways of Starmer, Reeves and the defeated Democrats.
In her budget last month, Reeves raised taxes by some £40billion, and despite her and Starmer’s airy promises of pursuing ‘growth’ before the election, any measures that would actually have achieved this were virtually absent from her statement, which punished employment, farmers and entrepreneurs.
Of course, Trump’s approach could yet backfire. He has threatened swingeing tariffs on trade: 60 per cent on Chinese goods and up to 20 per cent on the rest of the world, including Britain. This could lead to prices surging at home and global commerce faltering.
Bond markets are also concerned that Trump’s huge tax cuts could worsen the budget deficit he has inherited from Biden, potentially adding trillions of dollars to America’s national debt. However, Musk believes he can slash government spending, just as he slashed the headcount at his social media site X/Twitter.
Britain’s prospects for growth look doomed as we suffer the worst of Reeves’s wrong-headed budget. But Trumponomics is offering America the chance to escape inflation and debt – and grow its way to prosperity again.
