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UK Economic Recovery Hangs on Obama's State of the Union

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SOTU
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Today president Barack Obama will give his fifth State of the Union address. This will be Obama's second high profile speech in a matter of weeks. At his inauguration, Obama used lofty liberal rhetoric on social issues. At the State of the Union, it is expected that Obama will turn to setting out more gritty detail on domestic priorities for this second term. Undoubtedly, a large part of the speech will focus on how the United States can protect their economic recovery and create jobs.

In contrast, the UK economy is still flatlining. Our debt continues to tick up and at present there is more confidence in finding horsemeat in a lasagne than there is of finding steady economic growth.

But whilst the nation remains gripped by equine-gate, we should remember that the economic fortunes of the United States pose a far greater threat to the UK than a rogue Findus meal galloping onto a dinner plate.

Here's why. The United States is by far and away the UK's biggest trading partner. Every year the United States buys £122billion of our goods and services - everything from Rolls Royce jet engines to financial services in the City of London. In comparison our next biggest partner is Germany who buy £52billion, representing less than half of the purchasing might of the United States.

But the deal with the United States is even more important to the UK when you look at what we buy from them. In total, the UK buys a £100billion of goods and services from the United States. This means that our balance of payments with the US shows a very healthy surplus of around £22billion a year. Sadly, it's not the same deal with our European brethren. We buy £20 billion more of goods and services from Germany than they buy from the UK. In total, we run a £46billion deficit with the 27 countries in the EU.

But why is this important? Quite simply, it's better for our economy if we sell more of our goods and services than we buy. The more products like jet engines we sell keeps wealth and jobs in this country and stops money going to other countries, thereby benefiting them and not us. Because of our healthy surplus with the US, it's very important to the UK that the American economy stays strong. For Germany, it's more important that the UK economy is strong because it will mean we keep buying more of their BMWs. To summarise, surplus is good, deficit is less good.

I know, economists are probably cringing reading this, claiming I'm dumbing down complex economic problems to a punch line. Maybe I am but I'll only stop when you agree with each other, on anything.

This brings us back to Obama's State of the Union. On 1 March a whole raft of spending cuts, known as the sequester, are due to come into effect in the United States. If left unchanged it is widely acknowledged that the cuts will halt growth and will push the United States into recession. In his speech Obama is likely to throw down the gauntlet again to Congress to delay these cuts and find a solution that will not threaten the US economy and the jobs of millions of Americans.

Not just Americans, if Obama and Congress can't find a solution and the US economy tanks then it's likely that the £122billion they spend in the UK will be hit too. This will pile more pressure onto George Osborne who would have to deal with American stagnation on top of the economic paralysis across the channel in the Eurozone. And without any sign of UK growth, kiss goodbye to reducing the deficit and keeping our credit rating. So, pretty bleak then.

In the last few weeks we've painfully discovered how vulnerable our food chain is to a global economy. In the coming weeks after the State of the Union, if Obama and the US Congress don't find a solution that protects the US economy, then the negative impact on the UK's economy and jobs will likely be significant. This is a situation far more serious than the dilemma of whether you can trust what's cooking in your microwave.

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