The former president, a man whose economic policies were as erratic as a penny stock, has vowed to visit India. This news, breaking amid a thaw in US-India relations under a potential second Trump term, presents a fascinating tableau for the City. The narrative is that Trump and Modi, two strongmen with a penchant for protectionism, are mending fences. But make no mistake: this is about one thing and one thing only. Capital. India, with its demographic dividend and reforming financial markets, represents a yield play that makes UK gilts look like a savings account from the 1970s.
Let us examine the implications for Britain. The Treasury, ever hopeful, is cosying up to the Commonwealth in a bid to deepen trade ties. But this is a classic case of rearranging deckchairs on the Titanic. The Commonwealth is not a trade bloc. It is a historical relic, a portfolio of disparate economies with little cohesion. The UK's pivot towards it reeks of desperation, a stop-gap measure while the real prize of a US trade deal remains elusive.
Meanwhile, the market is pricing in a currency adjustment. Sterling, already under pressure from a sticky inflation reading, could face further headwinds if Trump's protectionist rhetoric gains traction. A US-India trade axis would undoubtedly divert capital flows away from London. The yield on the 10-year gilt, already wobbling above 4%, could see a spike as investors seek higher returns elsewhere.
Central bank policy is in a bind. The Bank of England, with its one-track mind on inflation, is caught between a rock and a hard place. Raise rates further to defend the pound, and risk choking off the anaemic recovery. Hold steady, and watch capital flee to the US and India. The MPC's minutes, when they come, will be scrutinised for any hint of a dovish tilt. My bet is on a pause, but don't quote me on that.
What does this mean for the average punter? Higher borrowing costs, for one. The mortgage market is already a minefield. And as for the stock market, the FTSE 100's international exposure might offer some solace, but the domestically focused FTSE 250 could take a hit.
In sum, Trump's visit to India is more than a diplomatic photo op. It is a signal to the markets that the world order is shifting. The UK, with its fiscal profligacy and Brexit-induced isolation, is left scrambling for relevance. The bottom line? Brace for volatility. The only certainty is uncertainty.
