And now for Stability…

Before Trump was declared the winner the markets began to react positively. This was not an endorsement of Trump but a reaction to the stability or accurately the avoidance of instability that would have occurred had Trump lost and then challenged the legitimacy of the results.

So where are we now?

Politics aside, having newly elected governments in the UK and the US has created stability, and markets and businesses like stability as it gives certainty of platform to agitate growth through development of products, services and efficiencies..

 What are the risks ahead?

 The UK

Reflecting on last week’s Autumn Budget statement by Rachel Reeves – as Tom Hunter said,

“There is no economy in the world that has taxed it's way to economic growth”

Yet high tax is here to stay with further incremental rises over the next few budgets making investment in the UK less appealing and costing SME's (the bedrock of the UK economy) more.

Growth is difficult to see and the OBR has said post budget that 5 year growth will be the same as it was predicted pre-budget rendering Labours budget moot.

 The fact that re-engaging with the EU would more than deliver what labour said was missing namely £22bn and raise additional tax through encouraging export production was cynically overlooked.

Labour enjoy the freedom that not being beholding to EU regulations gives them as much as Conservative's did even if this economically harms UK trade. I find this quite bizarre!

 Impact on SME's

The increases in minimum wage and NI only play into the hands of companies developing AI solutions to replace physical labour.  Supermarkets who already have automated checkouts are now incentivised to increase this along with robotic shelf stacking, inventory movement and stock ordering. The manufacturing supply chain will now be developing AI solutions at the cost of hard jobs. We will see more AI driven customer engagement points at the likes of petrol stations, airports, high street retailers, public transport, cinemas Etc.

AI doesn’t need paid a minimum wage and doesn’t attract the increased PAYE & NI levels.

Other SME sectors already exploring the fringes of AI integration will pick up the pace of implementation which will shortly see human labour replaced in business functions such as accounting, stock, marketing, legal, research, sales, stock, processing, data etc.

The UK Labour party the proclaimed government of the 'working man/woman' by making labour more expensive will drive unemployment as SME's look for ways to claw back the extra costs imposed on them.

This is an economic certainty. 'The invisible hand' as Adam Smith called it.

UK SME Opportunity

The opportunity for all SME’s is to now assess AI and how this can improve your business beyond merely writing a Chat GPT inspired article.

Those SME’s who embrace this tech and this can now in a sustained period of political and tax certainty be more relaxed about investing in and developing AI innovation. As they say Its not AI that will kill your business, its your competitors using AI who will.

Strategic evaluation is needed and if no strategy exists then one needs to be developed.

 The US

In his self-proclaimed victory speech this morning Donald Trump was surprisingly conciliatory in his language. His first comments were around uniting America and this is clearly needed. It is too early to understand how the 2.0 version of President Trump will differ from past experience but he knows he cant run again and may look to cement his legacy. Its fair to say we can anticipate an American first policy.

The US is an important market for UK companies and any imposed cost or regulatory increase will make other countries and regions more appealing. So here SME's who engage with the US currently may wish to look at other less costly routes to market.

 Immediately there was talk of Trump driving down the price of oil through increasing production in the US.  Trump wants a quick domestic win and lower prices at the American pumps will give him this,

OPEC will react against this, which will cause oil price competitive machinations which will not encourage green technology development. Cheap oil in one sense is good for some parts of the economy but its not for the environment and not for the Oil & Gas sector as it restricts development and for the UK will dent tax income.  

Global Implications

Trump has stated publicly he will suspend aid to Ukraine and will squeeze spending to NATO, feeling as he does that the US carries a proportionally larger funding responsibility (which is historically true)

Interestingly whilst the S&P 500 rose immediately the hours before Trump’s victory by 1.23%, driven by political stability, defence stocks fell by -0.31% suggesting the markets anticipate reduced US spending on global conflicts such as Ukraine. 

The short term impact of reducing military aid to Ukraine is a reduction its ability to keep Russia at bay. This will embolden Russia. 

Whilst this sounds unjust, it may actually  be the conduit that forces a negotiated settlement of conflict.  Ukraine cannot indefinitely fight Russia without support form the US and Zelensky may now realise the lesser of two evils is to concede territory for some degree of negotiated peace. 

Trump may then turn his attention to NATO. If he makes good on his threat cut US level of NATO funding this will further embolden Russia. Russia are worried about NATO expansion.

What could we reasonably expect to see ? Russia will likely begin to probe Nordic borders infringe European Airspace and test Nato. This year I flew in a friends helicopter and during the flight the radar was being jammed. The pilot advised this wasn't the first time. This could only have been Russia.

Regardless of USA pulling back support of NATO it is highly unlikely that Russia would cross borders here as he did in Ukraine, but Putin likes tension as this strengthens his base in Russia.

Russia is being affected by Global sanctions and Putin will seek ways to negotiate easing of these sanctions. A manufactured escalation and then negotiated de-escalation is how Russia (and other similar authoritarian states) operate.

Trump will claim credit for both Ukraine and easing of sanctions on Russia if the above happens and arguably will have a right to do so, regardless of the ethics of his claim and of this. 

Genoa Black

This is not a political statement. It is my thoughts having watched the markets react to both UK and US elections and having an economics background.

Regardless of your view of UK Labour or politics in the US, we now have certainty of political predictability & stability (to a degree) and after the last few chaotic years this is welcome.

We strongly recommend to all companies to evaluate your directions and strategy in light of what the next 12 months will bring. There is always opportunity in change, if you are able to uncover it.

If you are unsure on how to do this, we are here to discuss.

www.genoablack.com