The winds of change are blowing and on both sides of the Atlantic, new Governments are implementing their agendas. Trump has planned for a bonfire of regulations, and will prioritise the interests of Corporate America. In his last tenure as President, the stock market boomed, I expect the same, this time. In contrast, the Labour Party have introduced the most left wing set of policies in a generation, between wholesale changes to employment law, through to the biggest increases in taxation in a generation, with employers bearing the biggest brunt of this. Undoubtedly, the corporate response will be to reduce staffing levels and/or freeze hiring to compensate. Meanwhile with Trump coming to power, quite the opposite will happen, and deregulation and taxation will be the order of the day.

It is worth remembering that as recently as 2007, there were more companies listed on the London Stock Exchange, than on the New York Stock Exchange and NASDAQ combined. Now, the ratio is three to one in favour of New York and the gap is widening. Indeed, London’s banking sector has been slowly bleeding away due to a combination of factors, including the UK leaving the EU, increased regulation in the UK compared to the USA, and the impact of the share transaction tax. Now with Labour in power, there is a real danger that unless there is a concerted policy drive to enable growth in the sector, the slow decline will become irreversible, which considering the net contribution of the sector to the UK finances, will have consequences for everyone.

The challenge is, that the immediate impact of the budget has been seen in the gilt market, and borrowing costs have increased as a result. This will cause pressure on the Bank of England and will likely result in interest rates coming down slower than they would have otherwise. Similarly, the impact of the various tax increases on business, has the potential to create an inflationary wage increase cycle, as minimum wages go up, people look to restore pay parity. This will be at a time when the retail banking sector will be having to support hundreds of thousands of distressed businesses, who suddenly through the budget have gone from being profitable with low margins, to loss making. Retail and Hospitality are two such sectors which are raising the alarm.

There is a real danger as a result in Banks seeing their loans to businesses default at a higher level than they had planned. Already businesses in the UK are carrying a significant amount of debt due to the pandemic, and as an example of this, nearly 30% of all the bounce back loans are either behind in their payments or non-recoverable. Given over £46 billion was issued in bounce back loans, having 30% in default and rising, is a real problem for not just the Government, but the Banks also, as failing businesses, will be defaulting in other areas too. With that, expect Risk Control hiring to start surging in the coming months.

All-in-all, between the Labour Party talking down the economy citing the massive shortfall, and then implementing the budget they have done, there is a real danger the UK now is spiraling into a recession. There is a direct correlation between savings and increases in disposable income, i.e. the higher your disposable income, the more you are able to save, Conversely the same applies in the low wage economy, there is a direct correlation between earnings and consumption. People in low wage work, spend 100% of what they earn where if they lose their jobs, they just end up relying on charity and benefits. The destructiveness of this budget can be seen especially therefore, in how it penalizes people in part time employment. Indeed, in a study published in the guardian, it was estimated the cost of employing part time people could end up rising by up to 74%, when factoring both the increase in minimum wage and the various increases to NICS. For many businesses they will just reduce their headcount. They will have no other choice and this will a direct negative multiplier effect into the economy. In contrast, Trumps USA is likely to see aggressive economic growth, where the stock market will be the biggest beneficiary.

As a result, it is probably inevitable that New York vacancy volumes will exceed London next year, where this will be the first time we have seen this, since we have been operating. Traditionally, the costs of New York were so high, that Banks chose to operate multi-site, so for example Goldman Sachs have an operation in Salt Lake City, where only certain key roles would be in NYC. And going back to 2007, when we first started monitoring these data sets, there were approx. 2 vacancies in London for every 1 in New York. So for New York to overtake London on jobs… Well. Another unwelcome milestone is passed. Is this a point of no return? Probably not, but Labour do need to start having an economic growth strategy which is aligned with business, because for now, it is not.