The latest US GDP figures have surprised to the upside, showing growth of 3.2% annualised in the third quarter. Headlines celebrate a resilient American consumer and a labour market that refuses to buckle. But before we uncork the champagne, let us examine the fine print. Much of that growth is fuelled by government spending – a fiscal stimulus that would make a Victorian Chancellor blanch. The US deficit is running at 6% of GDP, and national debt has surpassed $33 trillion. This is not economic strength; it is a sugar rush.
Compare this to the UK, where Chancellor Jeremy Hunt has held the line on spending, prioritising deficit reduction even at the cost of slower growth. The result? Gilt yields remain elevated, yes, but the pound has stabilised, and the market retains confidence in British fiscal discipline. While the US Federal Reserve may be tempted to keep rates higher for longer, the Bank of England can afford a more measured approach.
Of course, the optimists will point to American tech innovation and productivity gains. But productivity metrics in the US are flattered by a handful of Silicon Valley giants. Real wages for the median worker are barely keeping pace with inflation. In Britain, we have our own productivity challenges, but we have not mortgaged future generations for present-day consumption.
The bottom line is this: markets eventually punish profligacy. The US dollar may be the world's reserve currency, but that privilege is not infinite. British fiscal prudence, though painful in the short term, builds a foundation for sustainable growth. The City understands this, even if Washington does not.
