The United States economy has once again outperformed expectations, posting robust growth figures that have confounded analysts and prompted the UK Treasury to examine potential applications for post-Brexit Britain. Gross domestic product expanded at an annualised rate of 3.2% in the third quarter, surpassing the consensus forecast of 2.8%. This marks the fourth consecutive quarter of above-trend growth, a streak not seen since the mid-2000s.
The resilience of the American economy stands in stark contrast to the sluggish performance of many European peers, including the United Kingdom. British GDP growth has averaged just 0.8% over the same period, weighed down by elevated inflation, weak business investment, and the lingering effects of Brexit-related trade frictions.
Senior UK Treasury officials have acknowledged that they are studying the US model closely, particularly its approach to fiscal policy and labour market flexibility. The American economy has benefited from significant fiscal stimulus, including the Inflation Reduction Act and the CHIPS and Science Act, which have channelled hundreds of billions of dollars into clean energy and semiconductor manufacturing. These measures have spurred private sector investment and created jobs, with the unemployment rate remaining near historic lows at 3.7%.
Moreover, the US labour market has demonstrated remarkable adaptability. The participation rate for prime-age workers has risen to 83.3%, its highest level since 2001, as flexible working arrangements and wage gains have drawn people back into the workforce. This contrasts with the UK, where labour shortages persist and participation remains below pre-pandemic levels.
However, Whitehall sources caution against drawing simple lessons. The United States benefits from a large, unified internal market, a highly diversified economy, and the dollar's status as the world's reserve currency. These structural advantages are not easily replicated. The UK's post-Brexit trading relationship with the European Union remains a source of ongoing friction, particularly for services exports. The Office for Budget Responsibility estimates that Brexit will ultimately reduce long-run productivity by 4% relative to remaining in the EU.
Nevertheless, the Treasury is reportedly focusing on areas where policy changes could yield dividends: streamlining regulation, enhancing workforce training, and incentivising private investment in strategic sectors. A Treasury spokesperson declined to comment on specific discussions but noted that the department routinely benchmarks international best practices.
Critics argue that the government's own policies have hampered growth. The decision to increase corporation tax to 25% has drawn sharp criticism from business groups, who warn that it undermines competitiveness. Meanwhile, the Net Zero Strategy has been criticised for lacking a clear roadmap for private investment. The US, by contrast, has used generous tax credits and subsidies to crowd in private capital under the Inflation Reduction Act.
The divergence in economic performance also reflects different macroeconomic conditions. The Federal Reserve managed to tame inflation without triggering a recession, a so-called soft landing, by raising interest rates aggressively from 2022. The Bank of England has pursued a similar path but has struggled to contain price pressures, with CPI inflation still running at 4.1% compared to 3.2% in the US.
For the new British government, the challenge is to identify which elements of the US success story are transferable. The OECD has recommended that the UK focus on improving skills, boosting housing supply, and reducing trade barriers. The Treasury's review is expected to inform the Chancellor's upcoming budget, with an emphasis on supply-side reforms.
As the global economy navigates a period of uncertainty, the US example offers both inspiration and caution. While there are undoubtedly lessons to be learned, the unique circumstances of each economy demand a tailored response. The UK's post-Brexit path remains uncertain, but the Treasury's renewed focus on learning from the US may provide a useful compass.
