United Kingdom

HAMISH MCRAE: Strong US under Joe Biden will boost Britain

Stand by for a strong US recovery. At noon in Washington on Wednesday Joe Biden becomes President. But already his administration has moved to thump $1.9trillion into the American economy. 

Add in the $935billion package Congress agreed last month and in the space of a few weeks, some $2.8trillion will have been added to US demand. 

That is big. It is roughly equivalent to the size of the entire UK economy or 15 per cent of the US one. And it is direct. 

New era: At noon in Washington on Wednesday Joe Biden becomes President

Thus there will be an additional cheque for $1,400 for people earning less than $75,000 a year, on top of $600 cheques recently handed out. 

If you put money straight into people's bank accounts, they will breathe a sigh of relief – and then they will spend it. 

There are many other measures, including extending the emergency unemployment benefits through to September, money for state and local governments and so on. All this will keep things ticking over until the vaccine rollout is fully established and some sort of normality of economic activity can return. 

The big point that matters for us on this side of the Atlantic is that this is probably enough to ensure that the US makes the fastest recovery among the large developed economies, in particular much faster than Europe. 

It did that after the banking crisis and recession of 2008/9 and it looks like doing so again. Europe will be held back by both the slowness with which the EU rescue package is being paid out, and the tardy distribution of vaccines. 

And Britain? Well, we have one huge advantage in the speed of the vaccination programme, which ramps up this week. The Government here has got many things wrong in its handling of the pandemic, but this is one thing it has got right. 

We look like being three or four weeks ahead of the US in terms of the proportion of people vaccinated, and six to eight weeks ahead of Europe. 

From a public health – and indeed a human perspective – this is massively welcome, but it is equally important from an economic point of view. 

The latest data coming through suggests that companies have managed better during the second lockdown back in November than they did during the first. 

But the third lockdown, the one we are now in, is devastating. We need to get out of this thing as fast as possible, but we need to nurture battered companies, particularly in the hospitality business, as they restock and reopen. 

That leads to a further point. The moment of maximum financial stress for a business is not when it locks down, but when it opens up. Costs rise before revenue when firms start trading again. That is something we have to be vigilant about come April and May – as Richard Fleming of Alvarez & Marsal warns on page 121. 

Rishi Sunak has wisely warned that the economy will get worse before it gets better, and he is right to do so. But the benefits of the vaccine rollout will be clear in about six weeks' time. We then have to manage the reopening of the economy better than we have managed the shutdowns. 

And at that moment, fingers crossed, the big thumping US economy will be starting to recover too. 

In economics, size matters. The scale of the US growth package is big enough to move the US economy, and then at one remove, the global one too. It is around one quarter of the world economy at market rates and its companies account for more than half of global market capitalisation. 

Aside from size, however, confidence also matters. 

I think as it becomes clear that the new US administration is going to be both competent in its management of the US economy and global in its outlook, that this confidence will influence what happens in the UK.

President Biden will do what is right for America. The team he is putting together is excellent. 

I know a little about some of his key aides from people who have worked with them, and they are great: thoughtful, intelligent, decent and humane. 

But by doing right for America, he will also do right for the rest of us. That, frankly, is a bit of a relief in these troubled times.

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