Having spent time in London and New York in January I am struck by what feels like distinctly different sentiments about the immediate prospects for each market drawn from my conversations with BAB members and from a balanced review of the observations of economists and other commentators. In the USA there is now a general consensus that the economic slowdown will be shallow and short-lived. Yes, there is some adjustment to headcount in industries that benefitted from the Covid shutdowns, especially in the largest tech firms, but overwhelmingly what I am hearing are stories of full orderbooks, strong pipelines and an optimism about the economy. The impact of the CHIPS Act and the Inflation Reduction Act (IRA) is hard to overstate; every company that is remotely connected to either the semi-conductor or green energy sectors has been looking for ways to take advantage of the billions of dollars of incentives and subsidies that have been made available.
And of course, it is not just US companies that are looking; overseas companies are able to access these incentives so long as the resultant investments are inside the USA. Purist free traders will find fault in the IRA in particular but there is little doubt that it is going to stimulate investment and suck in capital from all over the world and it positions the USA as a global leader in energy transition. Everyone will have their own view about the politics of these huge federal spending bills, and this will be played out over the coming weeks in Washington as the negotiation and debate about the US debt ceiling ensues but one way or another, it is done.
You can sense the real international importance of the IRA by looking at the response from the EU; worried that investment funds will be dragged to the USA, the EU is scrambling to find ways to match the incentives or build their own equivalent program. How the UK reacts is a lot less clear. For a long time, the UK has been a real success story in the global and regional fight for inward investment from international companies. The UK has had many real advantages in this competition from its time zone, language, education and skills base, legal system, global preeminence in some sectors and attractiveness for overseas executives but there is a growing sense that these are at risk of being outweighed by more negative considerations.
Even with a free trade agreement with the EU, Brexit has not helped with perception, but it is the rise in corporation tax and the increasing burden of personal taxation that is having the biggest effect. I spoke to a banker in London a couple of weeks ago who had recently moved with his company, a large US bank, from Germany to London to find his personal income tax percentage went up rather than down as a result of the move; both he and I were pretty stunned by this. Calls for the UK government to rethink its strategy are multiplying from business organizations worried about the lack of any focus on growth and the magnetic draw of US incentives and any EU response, could leave the UK in a difficult place. We will see.
BAB has been busy throughout January with a full program of events. In London I was pleased to moderate a terrific CEO Round Table discussion with Ecolab CEO, Christophe Beck. Christophe has been a leader in the Water Resilience Coalition of companies and it was refreshing to hear him talk about the enormous business opportunity that energy transition represents. Also in London we held a discussion with US life science companies and representatives of government on the commercial and investment environment for this crucial sector…a formal White Paper will follow later this spring. We held a fascinating virtual session on the political and economic outlook in the USA, supported by EY, and it has been great to see members out and about at various functions throughout the month. Business networking has always been a hugely valuable part of our membership offer at BAB and there will be plenty more opportunities to get involved in February and into spring. I hope to see you around!