With the market dominated by the words tariffs and trade war, many investors seem to be blinded by panic and are not looking for assets that could actually benefit.
I already mentioned one such asset gold which has once again hit an all-time high today. However, another asset has also caught my eye: the Great British Pound.
Now, Trump 2.0 has been extremely vocal about the countries he is unhappy with, including Canada, Mexico, China, and the European Union. However, while he has made a comment about the U.K. in reference to trade, his tone was noticeably softer.
In Trump’s words, “The U.K. is out of line, but I’m sure that one, I think, that one can be worked out.” Additionally, he told reporters that he was “getting along very well” with Keir Starmer, the Prime Minister of the U.K.
As of September 2024, the U.S. was the U.K.’s largest trading partner, accounting for over 17% of total U.K. trade. One thing that really frustrates Trump is when U.S. exports to a country are lower than its imports from that country. This is an area where the U.K. has an advantage, as the trade deficit between the two nations is relatively small.
Another crucial factor is that the U.K. economy is primarily driven by the service sector. This means that even if tariffs were imposed, their impact on the U.K. market would be relatively limited.
The five biggest goods the U.K. exports to the U.S. include cars, mechanical power generators, aircraft, and medicines, with a total value of approximately $31.8 billion. However, the real strength lies in services. The U.K.’s service exports to the U.S. including financial services and insurance are valued at around $134 billion.
If the U.K. can avoid tariffs, industries such as automotive and aerospace could benefit from increased demand, as U.S. buyers seek alternatives to tariff-hit suppliers from other countries.
With the Bank of England expected to cut interest rates tomorrow potentially stimulating much-needed economic growth and the U.K. being relatively politically stable compared to its European rivals like France and Germany, foreign investors may view the U.K. favourably.
In a world of uncertainty and chaos, one of the oldest currencies in the world may once again prove its resilience and stand out from the crowd.
James Trescothick
Head of Market Research and Market Analysis
*Sources: U.K Gov Department of Business and Trade, CNBC Business and BBC.
Risk Disclaimer: This information is for educational purposes only and does not constitute investment advice. Financial markets involve risks, and past performance is not indicative of future results. Always conduct your own research and seek professional advice before making investment decisions.
