The White House press room erupted into chaos yesterday as President Joe Biden, in an unscripted moment, labelled his predecessor Donald Trump a ‘loser’. The remark, caught on hot microphones during a photo opportunity, has sent shockwaves through Westminster. British diplomats, masters of the long game, are already circling like sharks scenting blood in the water. They see an opening to reset the stalled UK-US trade talks. The message from Downing Street is clear: strike while the iron is hot, and while Biden’s mood is cold towards the former president.
For investors, this is a classic ‘buy the rumour, sell the fact’ scenario. The pound, which has been battered by inflation and gilt yield volatility, saw a brief spike on the news. The FTSE 100, however, remained unmoved, reflecting the market’s deep scepticism about any tangible outcome. After all, trade negotiations are like marathon negotiations, not sprints. The last attempt at a post-Brexit trade deal fizzled out amidst mutual recriminations over chlorinated chicken and NHS access. This time, British diplomats hope Biden’s personal animosity towards Trump will translate into a willingness to strengthen ties with the UK, specifically to prevent any potential Trump comeback from tilting the US back towards protectionism.
But let’s not kid ourselves. The economic fundamentals are far from rosy. UK inflation remains stubbornly high at 6.7%, while the Bank of England signals further rate hikes. The gilt market is jittery, with the 10-year yield hovering near 4.5%. A trade deal with the US would be a welcome shot in the arm, potentially boosting UK GDP by 0.2% according to the Office for Budget Responsibility. Yet the devil is in the details. American demands for access to UK agricultural markets and pharmaceutical pricing remain major sticking points. Biden may loathe Trump, but he is no free-trader. His ‘Buy American’ policies and aversion to multilateral deals mean the UK could find itself trading one set of hurdles for another.
Meanwhile, capital flight from the UK remains a concern. London’s stock market has seen a raft of companies moving their primary listings to New York, lured by deeper pools of liquidity and higher valuations. A trade deal might stem the tide, but it is unlikely to reverse it. The City of London’s competitive edge is eroding, and not even a charm offensive from British diplomats can change that overnight.
In the end, this diplomatic gambit is a high-risk, high-reward play. British diplomats are betting that Biden’s ego and party loyalties will drive a more favourable trade agenda. But markets are a cruel mistress. They will wait for substance, not soundbites. Until then, the pound remains a hostage to fortune, and the UK’s trade deficit a persistent headache. As always, the bottom line is what matters. And right now, the bottom line looks precarious.
