Lloyds Banking Group CEO, Charlie Nunn, has cautioned the future ruling party in the UK that they will not be able to stimulate economic growth by increasing government borrowing. In an exclusive interview with Sky News, Nunn highlighted the challenges the next government will face due to the country’s national debt, which has escalated in the past 15 years due to various crises such as the global financial crisis, the pandemic, and the war in Ukraine. He also emphasized that these factors will limit the government’s ability to invest in the economy.
Nunn stated, “We have increased the government debt ratio for the UK. And we should just accept the government can’t pay its way out of this next stage.” He also pointed out that the US, with its strong economic growth and reserve currency status, has been able to sustain a high government deficit, but the UK does not have the same options. Therefore, the next government will need to have a clear plan and priorities in place to attract private domestic and international investment to support economic growth.
Nunn, who has served on both Prime Minister Rishi Sunak’s business council and the British Infrastructure Council launched by the shadow chancellor Rachel Reeves, believes that this will be the biggest challenge for the next administration. He explained, “The real issue is how are we going to get investment into the economy – and that investment isn’t going to come from the government. It’s going to have to be crowding in international foreign direct investment, leveraging the banking system, and supporting other financial institutions and pools of capital like pension funds.”
According to Nunn, business sentiment in the UK is currently high, and a clear government plan and priorities can unlock three things – attracting more domestic and foreign private investment, addressing supply-side issues hindering business investments, and focusing on long-term savings and investments.
As the owner of Halifax, the UK’s biggest mortgage lender, and one of the largest players in business banking and credit cards, Lloyds is well-positioned to understand what businesses and investors are looking for from the next government. Nunn stated, “The first thing that’s consistent across them is they’re looking for stability and a plan.” He also highlighted supply-side issues such as planning, connectivity to the electricity grid, and skills as barriers for businesses to get a return on their investments.
Nunn also commented on the impact of interest rates on the economy, stating that the expected cuts from the Bank of England later this year would be beneficial but warned that homeowners should not expect a return to the ultra-low interest rates seen in the past 16 years. He added, “So there is going to be a higher cost of borrowing in the economy, probably based on what we can see happening at the moment.”
Nunn also addressed the proposal for the Bank of England to pay no interest to banks on their reserves, stating that it would be a political decision and not one that Lloyds would get involved in. He also cautioned against the potential impact on monetary policy and the economy.
Finally, Nunn sees an opportunity for the next government to boost the economy through financial regulation, building on the new objectives recently set for financial regulators by the current government. He believes that the UK can learn from countries like the US and Canada, where financial regulation has been used to support businesses and families, and that there is more the UK can do to unlock opportunities for economic growth.