The UK and France – A Family Affair

The UK and France are like siblings. They may love each other deep down but most of the time they seem to be fighting it out. Always trying to outdo the other.

So it has been since 2016 – the year of Brexit – when the UK and France seem to have been at constant loggerheads. Then President François Hollande famously declared after the Brexit vote that “there must be a threat, there must be a risk, there must be a price” to the UK leaving the EU. President Emmanuel Macron continued that hardline stance, constantly criticising the arguments of the Leave campaign, opposing extensions to the UK’s timetable for leaving the EU and holding multiple ‘Choose France’ business summits to secure investment from overseas.

Events reached a nadir when, in this summer’s Conservative Party leadership campaign, Liz Truss was asked whether she considered Macron a friend or foe. Truss hesitated, smiled and looked out to the audience. ‘The jury’s out,’ she declared to cheers from the room.

Macron was asked about Truss’ remarks that same day. He paused, let out a long sigh and stifled a smile. “I don’t question it for a second: the UK is a friend of France,” he said. His face afterwards erupted into a broad grin – recognition that this was but the latest development in a very long-running family saga.

With Prime Minister Rishi Sunak at the helm, the relationship has taken a turn. At their first bilateral meeting at the COP27 summit in Egypt, Sunak and Macron were the vision of brothers reunited. All smiles, handshakes and ritual back slapping. After the event, Sunak tweeted that the UK and France were “friends, partners and allies” – a pointed rejoinder to Truss’ characterisation of the relationship.

So what do the ups and downs of British and French relations mean for business? Should investors take note?

The evidence of the last few years points to a mixed and often counterintuitive picture. The political drama of the Brexit years, for instance, had little effect on trade volumes. In 2015, total trade between the UK and France stood at £65.1 billion. It rose after the Brexit vote to £78 billion in 2017, £82.9 billion in 2018 and £84.4 billion in 2019 but fell again to £67.1 billion in 2020 – the pandemic year.

The same variation exists for Foreign Direct Investment (FDI). UK outward FDI stood at £60.5 billion in 2015, rising consistently every year to reach £85.5 billion in 2020. UK inward FDI stock stood at £69.6 billion in 2015, before rising and falling in successive years to end at £69.1 billion in 2020. The French stock market, however, has overtaken the UK’s as Europe’s most valuable. The CAC-40 has grown by 47% since 2020 while the FTSE 100 has only grown by 16%.

Steady trade volumes between 2016 and 2020 suggest that trade opportunities created by the relative weakness of the pound outweighed any loss of confidence that resulted from political hostility between the UK and France. The rally of exchanges between British and French politicians during the Brexit years were simply par for the course for business – a continuation of the long and complex rivalry between two countries stretching back a thousand years.

The variation in inward FDI since Brexit may be more nuanced, linked to broader investor uncertainty about the UK’s future outside of the EU. The disparity in the value of the French and UK stock market is more structural, linked to the nature of the businesses listed on the CAC-40 and the FTSE100 as well as recent political upheavals in the UK.

The immediate economic future for both countries is difficult but in different ways. Inflation in the UK hit 11.1% in October while inflation in France reached 6.2%. Unemployment in the UK stands at 3.6%, rising to 9.8% among those aged 16 to 24, while unemployment in France stands at 7.3% rising to 18.3% among those aged 15 to 24. Political difficulties are also plaguing the French President, with his party working with a minority government in L’Assemblée Nationale and the IMF stating that the French government should stop its “whatever it takes” attitude to support households and businesses through the energy crisis.

For investors, the key to understanding the effect of British-French political developments on investments means assessing the likelihood that the intense rivalry between the two countries and the relationship between its political leaders translates into policy changes that affect the ease of doing business in either jurisdiction.

In the meantime, the UK and France may soon be fighting it out again, with a quarter-final match between England and France in the football World Cup not beyond the realms of possibility. They could yet have another opportunity to showcase their rivalry to the world.

If you would like to discuss the UK-France relationship in more detail please contact our policy specialist Thomas Sharpe on thomassharpe@wacomms.co.uk.