31 March 2025: Planning reforms may afford Reeves a little breathing space

A new poll conducted since Donald Trump returned to the U.S. presidency suggests that UK businesses would prefer that the country tries to mend bridges with Brussels rather than kowtow to Trump to avoid being subject to tariffs on the country’s exports to the U.S.

On balance, although the U.S. is an important market for several sectors of UK manufacturing output, the effect of the country’s withdrawal from the single market and customs union has been devastating for the entire business sector.

It has become clear to business owners that Nigel Farage and his UKIP allies, now Reform UK, had ulterior motives for wishing to forge closer ties to the U.S. and do not necessarily have the best interests of the country at the heart of their policies.

Trump’s return to the White House and his economic and trade policies are considered to be universally harmful for UK businesses, but the forging of a closer relationship with Brussels would likely see productivity, output, and growth improve almost instantly.

The planning reforms that have been at the centre of Keir Starmer and Angela Rayner’s strategy to see 300k new houses built every year could be the answer to Rachel Reeves's hopes for the construction sector to be at the forefront of an ongoing strategy to promote domestic output.

The Government believes that local councils have been hiding behind archaic planning regulations since they simply do not have the funds to comply with the demands of the central government. However, quite apart from planning, since the country departed from the EU, there has been a major exodus of the tradespeople whose skills would be needed to even come close to building new homes in the numbers that Starmer and Rayner demand.

City analysts do not believe that balancing the books or promoting growth need to be mutually exclusive if public sector borrowing is handled properly.

With the British economy close to stagnation, this is the very last point at which a chancellor should even be contemplating “balancing the books” by cutting demand, let alone doing it in a way that rightly offends so many people who voted Labour with such high expectations by penalizing disabled people. The main theme of this budget was simply economically wrong.

The Chancellor is obsessed with studying Mark Carney’s time as Governor of the Bank of England, when interest rates were low and inflation was not an issue. Carney was able to keep a low profile while it was relatively simple to conform to his mandate.

Times have changed significantly since Andrew Bailey took on the poison chalice of trying to fight inflation, while the economy has begun to stutter and is now being driven towards a recession.

Trump has unwittingly set himself up as a scapegoat for those who see no way out of the UK’s growth issues. However, Germany has hit upon a solution by throwing off the very shackles that Reeves has tried to throw around the UK economy.

If the council elections in May go as badly as expected, Starmer may well decide that following his first year in creating a brave new economic world needs a more expansive Chancellor at its helm.

Last week, the pound continued its performance over the past three weeks, remaining in a relatively narrow range as the market remained in the thrall of U.S. economic policy.

It traded between 1.2992 and 1.2871 without any clear direction and closed at 1.2941.

This Wednesday has been labelled “liberation day by the U.S. President, as it is the day he has decided that most of his threatened tariffs will become active.

Sources told the Washington Post that President Trump is pressing his staff to take a harder stance on tariffs as part of an effort to transform the US economy.

That could include a universal tariff that applies to most imports regardless of their country of origin. He will also include his next batch of tariffs.

These may well include tariffs of between 25% and 50% on nations that buy Russian oil, as Trump professed himself to be p***ed off with Russian President Putin over his approach to a ceasefire in Ukraine.

“If Putin and I are unable to make a deal on stopping the bloodshed in Ukraine, and if I think it was Russia’s fault, which it might not be, but if I think it was Russia’s fault, I am going to put secondary tariffs on oil, on all oil coming out of Russia,” Trump said.

This was seen in the seventeenth and eighteenth centuries, when, if a nation didn't comply with UK or French demands, it was subject to a conspicuous display of naval power.

Trump’s style of gunboat diplomacy may well end up needing similar consequences.

For now, Treasury Secretary Scott Bessent’s “dirty 15” plan to set tariffs on the 15% of countries that the administration considers the worst trading partners is seen as the most likely outcome.

They are considering everything and trying very hard to make the idea of a reciprocal tariff both understandable to the American public and effective,” Wilbur Ross, Trump’s commerce secretary during his first term, told reporters at the weekend. “They are quite correctly exploring every alternative in the hope they come to the best possible solution.”

The U.S. stock market has delivered exceptional performance over the past year. Compared to other developed nations, the U.S. economy has outpaced its peers, driven by relatively strong corporate earnings, elevated government spending, and rising productivity.

However, financial markets may be beginning to question whether this era of American exceptionalism is coming to an end. A mix of slowing economic growth and rising consumer prices, stagflation to the public, threatens to halt the country’s long-standing market outperformance.

It’s a scenario that both policymakers and investors are eager to avoid.

Jerome Powell and his colleagues at the Federal Reserve are studiously avoiding any talk of a slowdown in the economy, allowing GDP to “take care of itself” while they concentrate on finally defeating inflation, which has become “sticky” over the past six months.

The dollar appears to have bottomed out, although a lot will depend on the market's reaction to what takes place on Wednesday.

Last week, it tried to test short-term resistance around the 104.80 level, climbing to a high of 104.71, but ran into selling interest, which pushed it back to close at 103.84

Tectonic shifts in the geo-economic landscape, from a tariff-induced correction in US equity markets to the potential for a cessation of conflict in Ukraine, have prompted investors to rush headlong into European stocks.

Moreover, the election in Germany and the potential for a dramatic shift in the country’s fiscal culture, together with the spending packages that are unfolding, have magnetized inflows from foreign investors and pushed the German DAX equity market to an all-time high.

There is a feeling that order is being restored, as Germany had to suffer the ignominy of seeing its rate of growth fall below countries that not so long ago it was helping avoid financial crises.

Set against the backdrop of a shifting geopolitical landscape and deep uncertainty in global markets, certain parts of the German economy hint at a promise of resilience and upside potential.

The innovation of German companies, the strength of its Mittelstand, or small to medium businesses, the industriousness of its workers and the dynamism of its services exports all rank as hidden gems beneath the surface of the otherwise doomsday discussion related to Germany’s present industrial crisis.

As Chancellor Friedrich Merz’s new government seeks to unleash a bumper fiscal package and potentially reform Germany’s recent fiscal conservatism, effectively placing its policies of the last twenty-five years in the dustbin of history, there is hope for additional cultural shifts to unfold within the German business landscape.

Meanwhile, although French Central Bank Governor Francois Villeroy de Galhau has said that the Trump administration is disrupting the multilateral economic system, which is hurting the American economy and, to a lesser extent, the European economy, there may also be green shoots of a recovery in the French economy on the horizon.

France's business sentiment improved slightly in March, and a gradual upturn in activity is likely in the months ahead.

That recovery is most noticeable in retail, where business leaders are more optimistic about future activity and orders.

Sentiment is stable in construction and services, where the outlook is improving, but it's deteriorating slightly in industry, mainly due to a decline in foreign order books. Employment sentiment in France rebounded in March, gaining 3 points, although it remains well below its long-term average.

However, any spring recovery is set to be limited. The likely decision by the US administration to increase customs duties on goods from Europe could affect exports, business confidence, hiring, and investment.

Last week, the Euro trod water, with traders believing that it is “too high to buy,” yet still supported by the uncertainty created by Donald Trump’s economic policies.

It fell to a low of 1.0733 but quickly recovered to close at 1.0827.

Have a great day!