Britain has always been an attractive place for investors to park their money.
The country’s economic dynamism has helped it pull in billions of pounds of investment, mainly toward its world-leading services industry and financial services businesses.
Although the City’s banks, insurers and brokers have contributed a great deal to UK growth, the country is probably suffering from too much of a good thing.
A booming services economy has left our goods economy languishing, creating a gaping trade deficit.
That shortfall means the UK has to rely on the “kindness of strangers” – according to ex-Bank of England governor Mark Carney (pictured) – to keep the economy functioning.
We have to borrow money from those “strangers” to ensure there are enough things in the country to match demand, which is partly the reason why the pound is languishing in the foreign exchange markets.
There are more pernicious factors that are hurting the pound. According to Goldman Sachs, we are more likely than the US and Europe to fall into a recession.
Those predictions have prompted investors to ditch sterling-denominated assets.
Meanwhile, across the pond, the US Federal Reserve has gone much further than the Bank of England in its inflation fight.
Higher rates stateside are making UK assets less competitive. Traders are turning their gaze to other opportunities.
This week we had a not-so-veiled signal from governor Andrew Bailey reaffirming the Bank will lift rates 50 basis points if inflation persists.
Don’t forget he has a form of building up market expectations for a rate rise only to then fold. The Bank’s muddied communications strategy has created greater uncertainty over the trajectory of monetary policy, adding to the headwinds buffeting the pound.
Effective government policy can help turn the tide in the pound’s favour.
Making our business and tax environment more welcoming will stimulate economic activity and tamp down on recession risks.
It will also make the UK a more attractive place to spend money by letting international investors keep more of the fruits of their endeavours.
Britain has always had friends abroad. It’s time we repaid them with a serious economic plan.