The chief executive of Lloyds Banking Group – the UK’s biggest lender – has warned whoever wins the general election that they will not be able to boost growth by increasing government borrowing.
Charlie Nunn said that a British national debt have been forced higher over the past decade and a half due to “massive upheavals” such as the global financial crisis, the pandemic, the war in Ukraine, as well as some issues specific to the UK economy.
Investment limits
And he exclusively told Sky News it would limit the next government’s ability to invest.
He said: “We have increased the government debt ratio in the UK. And…we should just accept that the government cannot pay its way out of this next phase.”
“The United States has grown to… 7.5% government in the last few years [deficit] to GDP. The US can do it because it’s growing at over 3%, but that’s about it too [the US dollar] world reserve currency.
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“We don’t have those options in the UK – but what we need is a really clear plan and a set of priorities for the UK. And then … we have to find the right way to raise a very material amount of private money.” international and domestic that is excited about investing in the UK to invest alongside the government.
The biggest challenge
“I think we can create a positive momentum for investment in jobs and business growth. And then that feeds into the economy. That has to be unlocking these three or four very systemic shocks that the British economy has experienced in recent years.” 16 years.”
Mr Nunn, who served on both Prime Minister Rishi Sunak’s Business Council and the UK Infrastructure Council launched by the shadow chancellor Rachel Reeveshe said this will be the biggest challenge for the next administration.
He added: “When you look at the next few years for the next government, the real issue is how do we get investment into the economy – and that investment is not coming from the government. cram in international FDI, use the banking system to really support customers, invest in their businesses and create jobs and growth employment, and then support other financial institutions and funds of capital such as pension funds for this investment.
“So we really need to focus on how do we spark some growth and how do we bring private money alongside government to make that difference? And that’s what’s going to deliver the best outcome for the country, but also for the government’s own finances.” “
“Very high” business sentiment
Mr Nunn, who said business sentiment was “actually very high” at the moment, said a clear government plan and set of priorities could unlock three things.
He continued: “The first is that we need to get more private, domestic and international investment into the UK to support growth and that has to come with some supply-side reforms.
The second is housing. Housing is a really important issue for the UK, from social housing to affordable housing to the wider housing market. We think you need a 10-year plan to unlock the housing investment that would be needed to make a real difference.
“And then the third thing that we think could make a difference is a focus on long-term savings and investment, both building financial resilience for businesses and consumers in the UK, but also how those savings, those savings pots, to invest back into the British economy.
“We think there’s an opportunity to do more.”
Investors looking for “stability and a plan”
The Lloyds it owns Halifax, the UK’s largest mortgage lender, as well as being the UK’s largest current account provider and one of its biggest players in corporate banking and credit cards, and the owner of life and pensions giant Scottish Widows.
Mr Nunn said he had met many businesses as chief executive and was clear about what they wanted from the next government.
He continued: “I spend a lot of time with entrepreneurs across the UK, but also with large international financial houses, whether they’re pension funds or institutions looking to invest in the UK. The first thing that is consistent between them is that they seek stability and a plan.
“And I think that’s the first thing for the new government to get stability and thinking in some of these areas around infrastructure and housing, which is 10-year thinking, not short-term thinking. So that’s the first thing.” they are looking for
“The other big theme that’s really consistent is that there are some supply-side issues … that prevent businesses from getting a return on their investment. And of course there’s been a good discussion about planning to connect to [electricity] grid, around skills. These are the three themes that businesses always identify.
“Two to four times longer to get a return on investment in the UK”
“And what does that mean for investors, whether they’re a business investor or an international investor? They’ll usually tell you that it takes two to four times longer to return on your investment in the UK than anywhere else in the world.” And that’s what we really have to focus on.”
Interest rates
Mr Nunn, who will celebrate his third anniversary as chief executive of the dark horse bank in August, said interest rate cuts from Bank of England expected later this year would be “beneficial” – but warned homeowners not to expect a return to the ultra-low interest rates seen for most of the past 16 years.
He added: “Obviously the short-term impact of interest rates is going to affect, firstly, the government’s cost of public debt. That’s going to be important. And secondly, it’s going to make businesses more attractive in the short term … that’s going to be important.
“In terms of the impact on the wider UK consumer, it will take longer to play out. In mortgages specifically, we’ve just moved into a decade where mortgages were between 1.5% and 2.5%.
“The market expectation is that interest rates are unlikely to go below 3.5%. And that means mortgages, or the new normal for mortgages, will be in the 3.5-4.5% range, not 1.5-2 .5%
“So there will be higher borrowing costs in the economy, probably based on what’s going on at the moment.
“But the rate cuts will be good for the government’s own ability to invest and will boost the economy and should be good for business.”
Bank of England proposals
Mr Nunn also disputed proposals that the Bank of England should not pay banks any interest on the reserves they have deposited with the Bank of England – a measure which UK reform he claimed it could raise £40bn could be used to reduce taxes.
The chief executive of Lloyds said: “Obviously this will be a political decision and not one that we will be directly involved in.” Governor of the Bank of England was important in that context … he would not support it because it would start to undermine monetary policy and specifically how … interest rates penetrate the economy, through commercial banks, through organizations like Lloyds Banking Group.
“I think that’s a really important consideration. As for the quantum of impact, there are different estimates, but I think the quantum of impact that’s been talked about is significantly greater than I think would be realistic. And so it will be political choice.
But you really have to look at the integrity of what the Bank of England is doing and whether or not monetary policy is working effectively in the economy.”
Growth through financial regulation
Mr Nunn also said there was an opportunity for the new government to strengthen the economy through financial regulation, based on new targets recently set for financial regulators by the current government, which committed the Financial Conduct Authority and the Prudential Regulation Authority to enable competitiveness and growth for both banking sector, as well as for the UK economy as a whole.
He emphasized that he was not calling for a return to the looser regulation we saw before the financial crisis, adding: “There are ways to help customers take the right amount of risk…how businesses and entrepreneurs take the right level of risk. and what can financial services safely support?
“When I look at what the UK is doing compared to other countries, we haven’t had that as a really clear target and I think we can do more to take advantage of the opportunities for businesses, for families in the UK in the coming period. flight.”
He said the US and Canada could be good role models for the UK in this regard.