HAMISH MCRAE: Pray for a productive five years under Labour

We know who will be calling the shots for the next five years, and we can guess what they’re planning.

But we also know that our daily lives are shaped as much by global economic events as by government policies. After all, the big increase in inflation was a global phenomenon.

So what are the big forces that will dominate the global economy for the rest of this decade – and that this new administration will need to address? Here are my top five, with the first and last being broadly positive and the three in the middle being negative to varying degrees.

First, there is a global economic cycle, with growth phases interrupted by recessions every decade or so. Based on past experience, we are now in a period of decent growth that will stay with us for a number of years.

The next such downturn, perhaps a serious recession, will probably come in the late 2020s. So the government has a few years to fix things, years it should use wisely.

One of those things, point two, is the national debt. The national debt is just under 100 percent of GDP, the highest level since the early 1960s, when we were still paying off the costs of World War II.

By international standards, it may not look so bad. It is the second lowest G7 country after Germany. But it needs to be maintained. Taxpayers around the world need to pay interest on it, and ideally we, and other countries, need to bring the numbers down.

Although interest rates will fall slightly in line with inflation in the coming months, in the medium term there will be a combination of relatively high interest rates and tight government finances.

Thirdly, the pressure will be further increased by the fact that the government will have to spend extra money in two areas: elderly care and defence.

The populations of all developed countries are ageing. How we and others respond to this will require more resources for health care, pensions, and so on.

In terms of defense, the world will be at least as unstable in the next five years as it has been in the last five years.

There will be no ‘peace dividend’, I fear, whatever happens in the current conflicts. Money spent on national security is money that is not available for other things, and we must simply hope that calmer times lie ahead by the end of the decade.

Fourth, globalization will remain under pressure. Trade barriers between the US and China are likely to increase, although we should all hope that the world’s two largest economies avoid a full-blown trade war.

It is inevitable that the shift in economic weight between developed and emerging economies, especially India, will continue and that will lead to further tensions.

But it also seems likely that financial markets will remain global, that money will continue to flow across borders and that international trade in services will continue to flourish. That could put the UK in a fairly strong position.

It is the world’s second-largest exporter of services. But disruption of trade is never good and we risk being caught in the crossfire.

Finally, a clear positive: technology will continue to race, and with it comes potentially enormous economic benefits. We may never see the details, not only of which technologies will catch on and which will die, but more importantly, of the economic consequences of the winners.

The general point – that generative AI will be hugely important in increasing productivity in service industries, including government services – certainly stands. This will be the decade in which AI really changes things.

The challenge is to use it well, regulate it wisely, but allow innovative applications of AI to flourish. Closer to home, government must use technology to boost the appalling productivity of our public services, which is lower than it was in 1997 when Labour last came to power, and which fell during the Blair and Brown governments.

It’s a mixed bag, with huge challenges but also many opportunities. Let’s hope Labour doesn’t make a mess of it.

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