- Brussels has not grasped how the world has changed
Don’t get too excited about the rapprochement between the UK and the EU that Sir Keir Starmer is seeking to establish at the summit in London tomorrow.
Even if all the argy-bargy about fishing rights and young Europeans coming to Britain is settled, any gains from a somewhat closer economic relationship with Europe will be marginal.
Of course, a harmonious relationship is better than a hostile one, and that will help support the growing perception among global investors that UK assets are worth buying. But don’t expect a boom in trade with Europe, because it’s not going to happen.
The big point here is that the gradual separation of the UK and EU economies began long before the Brexit referendum in 2016, and has continued since then.
Back in 2000, the EU took 55 per cent of our exports of goods and services, with the rest of the world taking 45 per cent. By 2013 those percentages had flipped, with Europe down to 45 per cent, and last year its share had fallen further to 41 per cent.
This has nothing to do with politics. It is simply that Europe has grown more slowly than other markets and it is very hard to see anything that will change that.
Different direction: We are moving to a new set of global trading rules, driven by the US
There are some possible points of progress, including easing checks on trade in food and agricultural produce, improving the rules for UK musicians, artists and entertainers to perform in Europe, and making it easier for lawyers and other professionals to do business there. That’s helpful, but it won’t move the dial.
What will make a difference – and here the story becomes interesting – is the way in which more uplifting mood music about the UK will affect investors’ perceptions. There has been a gradual reassessment of the attractions of British assets over the past couple of years.
You can see that in sterling, for while the pound is not yet back up to its peak of over $1.40 reached in the summer of 2021, it is no longer in the dog house where it has languished for most of the period since 2016. It is also towards the top of its post-Brexit trading range against the euro.
Shares seem to have been re-rated a bit too. The FTSE 100 index is up 5 per cent this year, whereas the S&P 500 after its bumpy ride is up only 1 per cent.
There have certainly been some pretty beefy gains in a few mainstream British companies. Did you spot that NatWest shares went over £5 on Friday, pushing them at last above the average price that the Government paid for the RBS holdings in the bailouts of 2007 and 2008? That’s up 25 per cent so far this year and more than 50 per cent higher than a year ago.
The banking sector as a whole, something we used to be strong on, is being revived. As a result, it is again becoming attractive to foreign investors.
Ultimately you restore confidence by costing money to the people who miss opportunities because they listen to the naysayers and, since Brexit, there have been far too many of those.
So if there is a reasonably favourable outcome to the summit, then it will help rebuild confidence about investing money in sterling assets. If not, then it will be a notable contrast between the positive mood at the US-UK talks a few days ago.
That will carry a message for investors. The discussion on tariffs between America and Europe is just around the corner. Donald Trump has been less than warm about the EU’s trading behaviour.
Let’s see how Europe behaves. Meanwhile, the question hanging over the debate is this. Is it a great idea to invest in the EU if it lets itself get into a punch-up with the world’s largest economy?
We are moving to a new set of global trading rules, driven by the US. In the UK we understand that. China understands that too, as you can see from its measured response to the over-the-top negotiating stance of Donald Trump.
I’m not sure the bureaucrats who run the commission in Brussels have quite grasped how the world has changed. Meanwhile let’s welcome a somewhat more co-operative relationship with Europe, if that is on offer.
If not, let’s remember that the growth markets are elsewhere.
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
InvestEngine
InvestEngine
Account and trading fee-free ETF investing
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
This article was originally published by a www.dailymail.co.uk . Read the Original article here. .