How will a Biden presidency affect the UK economy and your finances?

Category: Uncategorized

Despite a range of legal challenges to the election result, it looks likely Joe Biden will become the 46th President of the United States. The Democrat flipped states including Arizona, Michigan, and Wisconsin, receiving more than 79 million votes – the highest tally for a presidential candidate in history.

Many incoming presidents have faced daunting challenges – Franklin Roosevelt in 1932 and Ronald Reagan in 1980 spring to mind – and Biden’s immediate challenge is to get the Covid-19 pandemic under control in a deeply divided country.

So, what does a Biden presidency mean for the economy, and for your finances?

A pro-Europe president could make a US-UK trade deal trickier

Biden is a well-known Brexit sceptic, believing the European Union to be one of the world’s premier trading blocs.

In October, Biden warned in a tweet that any future UK-US trade deal was contingent on the UK not unravelling the Good Friday Agreement that brought peace to Northern Ireland.

As no post-Brexit trade deal has yet been struck between the UK and US, the detail of that deal could be significantly different under President Biden than it would have been under a second Trump administration. Trump, of course, is a supporter of Brexit.

It seems likely the Biden administration will attach less importance to agreeing a trade deal with the UK than it will improving the relationship between the US and the EU. This could be a significant issue for the UK, as the US is already the UK’s largest trading partner outside the EU.

The Department for International Trade estimated UK-US trade was worth £220 billion in 2019, and its US equivalent put it at £211 billion, making the UK the United States’ seventh-largest trading partner.

Relations between Biden and Boris Johnson are also less than cordial. The two men have never met and in December 2019 the former Vice-President described the prime minister as a ‘physical and emotional clone’ of Donald Trump.

At this stage, it looks likely a change of president will push the signing of any Anglo-US trade accord further into the future, which could have damaging effects for the UK economy.

A stimulus package to stimulate markets

Before the election, Biden talked extensively about passing a stimulus package to galvanise the US domestic economy and support businesses and individuals to recover from the financial impact of Covid-19.

While the Democrats control the House, it looks likely the Republicans will retain control of the Senate, which means any stimulus package will need cross-party support. If such an agreement can be reached, a tax-and-spend approach is likely to be welcomed by global stock markets, which typically react well to positive economic activity.

A small fiscal stimulus package would likely require the US central bank to keep interest rates lower for longer and potentially continue with quantitative easing policies and this should support markets.

If you ignore the short-term impact of the Covid-19 virus, all the key indicators show the underlying US economy is performing well. At the time of writing, the Dow Jones is now at 29,300, fully recovered from the loss of a third of its value in the immediate aftermath of the outbreak.

The more tech-stock orientated NASDAQ has fared even better, rising more than 30% in the last twelve months. The US economy bounced back by 7.4% in the third quarter of 2020 and, having peaked at more than 14% in April, unemployment is now back down to 7.9%.

Stock markets around the world experienced a ‘Biden bounce’ on the election result, and news of potential Covid-19 vaccines have also boosted share prices. The FTSE All-Share index rose by just under 9% between 6 and 16 November 2020, following confirmation of the election result and positive news from Pfizer on a potential Covid-19 vaccine.

For the US economy and stock market, much depends on what kind of stimulus measures are announced to combat the Covid-related downturn.

Rising markets are, of course, good news for anyone with shareholdings, so your pensions and investments could benefit.

A strong dollar could boost exports

A strong response to Covid-19 and a thriving economy is likely to also boost the value of the dollar.

If the dollar rises in value relative to sterling, UK exports will become cheaper for Americans – and this could help struggling UK firms. Of course, it also means we’d pay more for importing US goods.

Get in touch

As a cross-border financial planning firm with offices in both the UK and Australia, we’re uniquely placed to assist you with your financial and pension arrangements. Get in touch to find out how we can help.