New UK economic initiatives on government's first anniversary

Business Times

5 days ago

THIS week, the UK government commemorates the first anniversary of its landslide election victory. Despite its big legislative majority, British Prime Minister Keir Starmer has had a bumpy year in power and is seeking to regain the initiative with major new economic initiatives.
This includes a comprehensive industrial strategy and new trade plan, both released in late June. These documents are designed to enhance the attractiveness of the UK to international investors, including in the Asia-Pacific region, ahead of potential further economic turbulence in July as the 90-day US tariff pause is scheduled to come to an end, barring any further changes of policy from US President Donald Trump.
The starting point for the 10-year industrial strategy is that the global economy has entered a new era, especially with the re-election of Trump last November. Yet, in this Vuca (volatile, uncertain, complex and ambiguous) landscape with new risks to UK security and living standards, there is also significant opportunity.
The strategy highlighted plans to turbocharge development in eight high-potential economic sectors representing 32 per cent of the economy. These are: advanced manufacturing, creative industries, life sciences, clean energy, defence, digital and technologies, professional and business services, as well as financial services.
The government believes the United Kingdom is well-placed to seize advantage in all of these areas as a relatively open, entrepreneurial and dynamic economy. This includes a significantly sized finance industry, as well as universities and scientific institutions that are all internationally competitive.
Building on political stability
Starmer also hopes that, for the first time in the post-Brexit era, the UK investment landscape can be boosted by newfound political stability. The current government may be the first to last a four to five-year parliamentary term, without any change of prime minister, since the coalition administration led by then-prime minister David Cameron from 2010 to 2015.
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Building from this relative political longevity, the Starmer government wants to try to build a new, deeper relationship with businesses. This includes a 'more muscular approach from government… to back British businesses, invest in our comparative advantage and take punts in pursuit of growth and productivity'.
To be sure, this is probably not heralding a return to the UK government approach in the 1960s and 1970s of so-called picking winners to help ensure specific companies gain a comparative advantage in key sectors. What it does amount to, however, is not only designating growth sectors like clean energy, but more decisively addressing related questions such as what regulatory climate is needed for the UK to thrive.
Meanwhile, the trade strategy comes on the back of several recent international wins for Starmer in this area. That is, a trade deal with India, a Brexit reset agreement with the European Union and a tariff deal with the US.
Beyond these, the new strategy seeks, in the midst of growing protectionism, to rejuvenate the ideas of Scottish economist Adam Smith who authored The Wealth of Nations in 1776 – for the mid-2020s.
The Starmer government wants the country to rediscover its heritage as a 'great trading nation', leveraging UK strengths, including diplomatic and industrial. The government also wants to see old ideas updated, including transforming 'services trade from a so-called invisible add-on to the balance of payments… heralding it as the indispensable core of the UK's contemporary export earnings'.
More targeted deals
The focus of the UK strategy is not just major powers like the US and India, but also a wide range of middle economies around the world. These include both key emerging markets like the Gulf Cooperation Council states and Mexico, alongside industrialised economies such as Canada, Switzerland and South Korea.
Reflecting recent think tank reports, the new trade strategy's focus is not only on comprehensive long-term trade agreements with key partners. The Tony Blair Institute for Global Change recently highlighted that only three new trade agreements were inked from 2020 to 2024, and these are expected to boost exports by a modest £9.5 billion (S$16.6 billion) in the long run. This underscores the poor match between trade agreements, which tend to be time-consuming and goods focused, and the UK's core strengths in services and digital trade, as well as diminishing returns on investments.
Over the same period, however, successive UK administrations resolved some 640 market access barriers, whose strategic bilateral market gains increasingly have the potential to deliver higher value, faster. An example cited as good practice is the UK's digital economic agreement with Singapore, which leverages British strengths as a tech and services leader and was negotiated relatively quickly in 2022.
So rather than doubling down on slow-moving and broad trade agreements, the new trade strategy advocates for more targeted services-orientated market access deals that can be negotiated faster and deliver bigger economic impact.
Starmer is hoping that this economic blitz of new strategies can help the government regain its footing after a challenging first year. Amid potential new US tariffs turmoil this month, the Starmer team thinks more investors could perceive the UK as a safe haven.
In part, this is because of London's status as Europe's key financial centre. The pound sterling is still the world's fourth-largest reserve currency after the US dollar, the euro and the yen, amounting to around 5 per cent of global foreign exchange reserves.
In turn, the government hopes this could lead to a big political reset moment, before the summer legislative recess begins, so it could try to move back onto the front foot and deliver the prime minister's pledged 'decade of renewal' well into the 2030s. This is plausible, although the Starmer team remains buffeted by a range of challenges, including over its controversial welfare reforms.
In this context, there is growing speculation in Westminster of a possible July cabinet reshuffle. Starmer could potentially move weaker-performing members of his top team, among them Chancellor Rachel Reeves, after her challenging year in office.
Taken together, the one-year anniversary of Starmer's government therefore has the potential to be a tipping point as it seeks to reset itself after an uneven 12 months in power. While the administration has such a big majority it will likely serve a four or five-year term, its ultimate success still remains in the balance.
The writer is an associate at LSE Ideas at the London School of Economics