NEWS: 3 Ways The US Election Could Affect the UK Economy

The US presidential election could have a ripple effect on the UK economy, with very different outcomes depending on whether we see a Trump or Harris victory.

Written by: Luka Ball

Analysts are closely watching how the outcome of the US election could shape the relationship between the UK and the US over the next four years. In the UK, it's easy to think that what happens across the pond won't affect us or our economy too much. But post-Brexit, the UK is more entwined with US politics than ever. 

As European economics experts watch the build-up to the election with a sense of anticipation bordering on anxiety, the consensus is clear: a second Trump Presidency would certainly be a "shock" for the global economy. Alongside tensions in the Middle East, this U-turn would not be a welcome change for many Europeans.

According to a survey by Hargreaves Lansdown, 46% of Britons think that Kamala Harris would be better for the US economy, compared to 21% who thought Trump would improve the US economy.

US citizens, however, are frustrated with the post-COVID economy and could be bracing for a change in administration. 

In this article, we explore the key factors that could impact UK markets and how a win for each candidate could influence the global economy.

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Currency and Defence

Trump

Under Trump’s potential second term, currency markets may experience a level of volatility, and his support for low interest rates and deregulation could weaken the dollar. A weaker dollar may impact UK exporters and manufacturers with operations in the US, while fluctuations in exchange rates could affect foreign investors’ appetite for UK property.

Trump’s stance on Federal Reserve policy, advocating for greater political influence over monetary decisions, could add further uncertainty for currency markets, potentially impacting foreign investments linked to the UK property sector.

Trump has also threatened to withdraw funding from NATO, which would put financial pressure on the UK government to make up for the shortfall. This discussion has caused controversy among political analysts because, without support from the US, Europe could be significantly more exposed in terms of defence.

With the UK government's funds already low following COVID and high inflation, this additional public spending could put a strain on our economy and have a butterfly effect on the housing market. 

Harris

On the other hand, Harris's having served as Vice President to Biden plays a big role in why her candidacy is expected to bring stability. So far, her policies have not challenged the status quo, whereas Trump is playing to the angle that he'll shake things up and make the US prosperous again.

Her alignment with Biden’s monetary and fiscal policies and commitment to keeping the Federal Reserve independent may create steadier exchange rates, reducing risk for UK investors holding US-based assets. This stability could also benefit UK property markets, making it easier for foreign investors to plan and manage long-term investments in the UK.

Harris has repeatedly stated her support for NATO and Ukraine, so if she were to win the election, it would dispel the majority of the defence worries associated with Trump's presidency. That being said, it is expected that Harris will want European nations to increase their defense spending regarding Ukraine and NATO, so this could also stretch the UK's finances.

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Effects on the UK Property Market

Trump

For the UK property market, a Trump win could bolster investments in commercial properties with ties to traditional energy and financial services.

It's likely Trump's policies will echo what we saw during his presidency. In 2017, he cut corporate tax to 21% from 35% and proposed further tax cuts for his second term. While big changes like this can promote more economic stimulation in the short term (as seen with the Conservative's Stamp Duty holiday in 2020), it can also be harmful because it can lead to budget deficits and high inflation.

Trump's policy preferences for fossil fuels and reduced regulatory barriers could attract investment into industrial and commercial spaces geared toward energy production and resource extraction - which could boost demand for UK commercial properties used by these sectors. However, his protectionist trade stance and unpredictable economic policies might deter foreign investors seeking stability. This could have a ripple adding risk to the UK property market in the long term.

Additionally, Trump’s trade policies could lead to more currency fluctuations, potentially impacting the affordability of UK property for American investors. If a Trump presidency leads to a weaker dollar, this could make UK property relatively more expensive for US-based buyers, potentially reducing US investment in the UK housing market.

Harris

Based on her policies, Harris winning the election could mean increased stability in international markets, which could benefit the UK housing market and broader economy. With Harris expected to continue Biden-era policies prioritising international cooperation, predictable trade agreements, and green investment, the UK would face less volatility in currency exchange rates and benefit from a steadier flow of foreign investments.

This could make UK property more attractive to American and international investors seeking reliable returns in a stable market, potentially boosting demand for UK properties, particularly those aligned with green and sustainable standards.

Her commitment to international cooperation could also bring greater currency stability, creating a steadier environment for foreign buyers interested in UK property. If her policies help stabilise the dollar, this may keep UK property relatively affordable for American investors and encourage long-term investments in UK property.

Trade and Economic Volatility

Trump

If elected, Trump is expected to revive his "America First" approach, focusing on economic protectionism and bilateral trade deals that could reshape UK access to US markets.

In particular, Trump has expressed interest in reducing US agricultural trade barriers, which may put pressure on the UK to adjust its food standards as part of any future trade negotiations. Such a shift could impact British farmers and food producers, especially those operating under stringent EU regulations.

His harsh stance on tariffs regarding international trade (particularly in the case for China, where he has proposed a 60% tariff) and prioritising US interests could lead to volatility in the market. It's likely that this is dampening enthusiasm among European investors seeking a stable and predictable trade relationship with the US.

According to Axa, European countries are looking at a significantly smaller 10% tariff, but this would still be a 5% increase from what we have currently, which could bring about a level of tension if introduced.

Trump’s emphasis on deregulation could benefit UK investors in traditional energy and finance sectors. Trump has historically favoured fossil fuel production, reduced environmental restrictions, and promoted deregulated financial environments. Considering the US accounts for more than 13% of global emissions, the former points would almost certainly have a knock-on effect on the environment. But it could also lead to a boost in energy industry that could benefit the UK.

Harris

In contrast, Harris is expected to uphold much of the Biden administration’s commitment to multilateral cooperation, which could create a more stable trading environment between the US and UK.

Her approach could give UK exporters more predictable market access and encourage growth in sectors aligned with Biden-era policies, such as clean energy and sustainability.

UK-based businesses specialising in renewable energy, technology, and sustainable goods would benefit from Harris's climate-focused policies, prioritising green infrastructure and likely boosting demand for UK exports in these fields.

Harris’s approach could reduce the likelihood of sudden tariff hikes, making the UK a more attractive market for US investors. Her support for climate initiatives and sustainable infrastructure could further create opportunities for UK companies engaged in eco-friendly projects, with her policies encouraging growth in sectors that align with the UK’s own climate objectives.

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Preparing for Change in the UK Market

The US has a huge influence, so it's natural that the US election will garner attention from around the globe. As tension builds leading up to and following the election, there will be a level of volatility surrounding US markets. Harris's policies stay relatively true to Biden's, who was in office for over three years. As well as this, she's made her loyalties to international trade relations clear, so there's less uncertainty over how her proposed changes will affect neighbouring countries. 

That being said, any volatility an election brings is typically relatively short-lived. When investing in property, it's important to consider how the landscape could change in the long term rather than focusing on short-term influences. 

In the UK, inflation is down, and further interest rate reductions could be on the horizon. Despite current optimism about declining mortgage rates, deciding on the best option can be daunting and confusing.

We can help you compare mortgage products and their cost to find the best deal based on your specific situation from a wide range of lenders nationwide.

Expert mortgage advisors have their finger on the pulse of the latest mortgage market news. Whether you're a first-time buyer or looking to refinance or invest in a BTL, we can help you understand your mortgage options so you feel confident you're making the right choice.

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