The chief executive of Lloyds Banking Group – the UK’s biggest lender – has warned whoever wins the general election will not be able to fuel growth by increasing government borrowing.
Charlie Nunn said that the UK national debt it has been forced to rise in the last decade and a half due to “massive shocks” such as the global financial crisis, the pandemic, the war in Ukraine and also by some specific issues in the UK economy.
Investment Limits
And, speaking exclusively to Sky News, he said this would limit the next government’s ability to invest.
He said: “We have increased the UK’s public debt ratio. And… we should simply accept that the government cannot pay its way out of this next phase.
“The US in recent years has risen to a… 7.5% government [deficit] relation to GDP. The US can do this because it is growing above 3%, but it also [the US dollar] the 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 so… we need to find the right way to get the very significant amount of private money, international and national, who is excited to invest in the UK to invest alongside the government.
The biggest challenge
“I think we can create that positive momentum for investment in jobs and business growth. And then that will feed through to the economy. That should be the unlocking of these three or four very systemic shocks that the UK economy has suffered over the last 16 years. “
Nunn, who served on Prime Minister Rishi Sunak’s business council and the British Infrastructure Council launched by the shadow chancellor Raquel Reevessaid that this would be the biggest challenge for the next government.
He added: “When you look at the next few years for the next government, the real question is how we are going to get investment into the economy – and that investment will not come from government. attracting international foreign direct investment, leveraging the banking system to really support customers, investing in their businesses and creating jobs and growth employment and then supporting other financial institutions and capital reserves, like pension funds, for that investment.
“So the real focus has to be how do we get some growth and how can we bring private money together with government to make that difference? And this is what will give the best result for the country, but also for the government’s own finances. “
Business sentiment ‘very high’
Nunn, who said business sentiment is “really very high” right now, 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 investment, both domestic and international, into the UK to support growth, and this needs to be accompanied by some supply-side reforms.
The second is housing. Housing is a really important topic for the UK, from social housing to affordable housing and the wider property market. We think a 10-year plan is needed to unlock the housing investment that would be needed to really make a difference.
“And then the third thing we think could make a difference is focusing on long-term savings and investment, both in building financial resilience for businesses and consumers in the UK, but also in how we use those savings, those pots of savings, to invest back into the UK economy.
“We think there’s opportunity to do more.”
Investors looking for ‘stability and a plan’
Lloyds owns Halifax, the UK’s biggest mortgage lender, as well as being the UK’s biggest current account provider and one of its biggest players in business banking and credit cards and owner of life and pensions giant Scottish Widows.
Nunn said that as chief executive he met many companies and made it clear 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 pension funds or institutions looking to invest in the UK. The first thing that is consistent across them is that they are looking for stability and a plan.
“And I think that’s the first thing for a new government, which is to provide that stability and think, in some of these areas around infrastructure and housing, which means 10 years of thinking, not thinking about the short term. they are looking.
“The second big theme, which is really consistent, is that there are some supply-side issues… that are preventing companies from getting a return on their investments. And obviously there’s been a good discussion about planning in around connectivity to [electricity] grid, around skills. These are the three topics that companies always identify.
‘Two to four times longer to achieve return on investment in the UK’
“And what does this mean for investors, whether corporate or international? Typically, they will tell you that it takes two to four times longer to get a return on your investment in the UK than in other countries around the world. And that’s where we really need to focus.”
Interest rate
Nunn, who in August will celebrate his third anniversary as chief executive of Banco Cavalo Negro, said the interest rate cuts of 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: “It’s clear that the short-term impact of interest rates will have an impact, firstly, on the government’s cost of public debt. That will be important. And secondly, it will make the cost of borrowing for businesses in the short term more attractive…this will be important.
“In terms of the impact on the wider UK consumer, it will take longer to implement. Specifically regarding mortgages, we just came out of a decade where mortgages were in the 1.5-2.5% range.
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“Market expectations are that interest rates are unlikely to fall below 3.5%. And that means that 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 a higher cost of borrowing in the economy, probably based on what we can see happening right now.
“But a reduction in rates will be good for the government’s own investment capacity and will support the economy and should be good for business.”
Bank of England proposals
Nunn also questioned proposals for the Bank of England not to pay interest to banks on the reserves they deposited with the Bank of England – a move that UK Reform claimed it could raise £40 billion which could be used to reduce taxes.
The Lloyds chief executive said: “Obviously this will be a political decision and not one in which we will be directly involved. The statement from the governor of the Bank of England it was important in this context…he wouldn’t support it because it would start to undermine monetary policy and specifically the way in which…interest rates are transmitted to the economy, through the commercial banks, through organizations like Lloyds Banking Group .
“I think that’s a very important consideration. In terms of the amount of impact, there are various estimates out there, but I think the amount of impact being talked about is significantly greater than I think would be realistic. And so it will be a political choice.” .
But it’s really necessary to look at the integrity of what the Bank of England does and whether or not monetary policy works effectively in the economy.”
Growth through financial regulation
Nunn also said there was an opportunity for a new government to boost the economy through financial regulation, building on the new objectives recently set for financial regulators by the current government, which required the Financial Conduct Authority and the Prudential Regulation Authority to allow competitiveness and growth for both the banking sector and the UK economy as a whole.
Stressing that he was not calling for a return to the looser regulation seen before the financial crisis, he added: “There are options about how we can help clients take the right level of risk… how do companies and entrepreneurs take the right level of risk and what can financial services safely do to support this?
“When I look at what the UK is doing in relation to other countries, we haven’t had that as a very clear objective and I think we can do more to seize opportunities for businesses, for families in the UK, in the coming years. years.”
He said the US and Canada could be a good model for the UK in this regard.
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