Equity markets on both sides of the Atlantic are at all-time highs. The ‘Big Seven’ tech firms are at the summit. What does this tell us about the opportunities for business leaders in the UK and US in these times of change? RSM UK and Ireland Chief Economist Tom Pugh and RSM US Chief Economist and Principal, Joe Brusuelas, talk tech, economic growth and productivity.

Technology has underpinned US economic performance since the Global Financial Crisis (GFC). This gives some credibility to today’s equity market valuations. Heavy US investment here has – among other significant factors – fed directly into the US’s growth-driving productivity improvements.

Between 2010−24, the US economy expanded at roughly twice the rate of the UK’s. For UK firms operating in the US – particularly in tech, legal and financial, professional and business services, which make up two-thirds of transatlantic trade – this means access to a large, fast-growing market.

The diverging experiences of the US and UK over the past decade show how sustained investment in technology, energy infrastructure and skills can shift an economy’s long-term growth trajectory.

How has technology impacted US and UK growth?

“It’s telling that US economic growth over the past two decades was double the UK’s,” says RSM US Chief Economist and Principal, Joe Brusuelas. “That’s partly because of technology investment and productivity improvements. US productivity is poised to grow 3% annually over the next decade because of investments that are happening now.”

Today, the Big Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) have put hundreds of billions of dollars on the table to create AI-ready infrastructure, with energy producers scaling up to meet demand. “These investments are making equity markets melt up,” says Joe Bruselas. “It’s happening independently of politics.”

By contrast, UK technology investment has lagged. The UK also faces the second highest energy costs in the developed world – a critical issue for running the data centres AI relies on.

“We need to upgrade the energy grid to reduce energy costs and build capacity,” says RSM UK and Ireland Chief Economist, Tom Pugh. “If we can do that in conjunction with AI-funded investment, like the billions pledged by Microsoft, OpenAI, Nvidia and Google, then that’s a win-win. The big question is: how we can plan to take advantage of these advances and manage the risks as businesses?”

Lessons from the US’s big bet on technology

The US middle market offers a clear example of these diverging productivity trends. Two major shocks − the GFC and the pandemic – in the past two decades triggered a profound reconstruction.

“We’ve been able to look at the hard tax data and found preconceptions about which companies are in the middle market no longer held,” says Joe Brusuelas. “We found those firms in the US that survived the GFC and the pandemic got bigger and moved up the market. A dynamic and resilient market is your working definition.”

Highlighting historic hinge points where the US economy accelerated because of firms adopting recent technologies and scaling rapidly, Joe Brusuelas notes the creative destruction of bigger companies taking over smaller companies and vice versa. “Those that survived the shocks are more prosperous and dynamic and, because they integrate tech into their production, these are firms that are going to grow.”

One of the biggest drivers of productivity in an economy is the exit of underperformers for markets. “It’s one of the reasons why the US has been so productive,” says Tom Pugh. “In the UK, that driver of productivity hasn’t existed for the past few years.”

Balancing budget deficits with demographic changes and AI

UK productivity is also limited by the twin labour-market challenges of demographic change and upskilling. “The scare with AI is mass unemployment,” says Tom Pugh. “However, we’re far more likely to see shifting trends, such as in graduate recruitment now. There might be a transitory stage and an adjustment cost, but there’s still going to be plenty of jobs.”

The US did go through a structural post-pandemic adjustment. Even so, unemployment stayed quite low − and that’s with full employment now considered to be 4% rather than the 6% it was three decades ago. “The US is operating around full employment and now has the labour shock from immigration policies and 11,000 Baby Boomers retiring every day,” says Joe Bruseulas. “This all puts labour costs in focus and is something of a structural growth trigger. We’re going to need AI to substitute for labour, irrespective of recent investments. There’ll be some dislocation where certain sectors of the labour market will bear more of the cost of adjustment than others. But, the US economy is going to create a lot of new jobs.”

Economic policy risks to US growth and AI adoption

That new technology is more likely to add jobs and boost productivity is critical for governments’ ability to raise the taxes it needs to finance public spending − and debt. The recent UK Autumn Budget really highlighted how this factor is shaping policy choices that impact firm-level decision-making, inflation forecasts and interest-rate decisions.

“We’re in a higher inflation and higher interest rate world right now,” says Tom Pugh. “This applies to the UK as it does to the US. Every developed economy has an aging demographic for the next 20–30 years and there’ll be fewer working people to raise taxes from. But, politicians all engage in kicking the can down the road because the political costs of dealing with the deficits now are just too painful.”

However, the US has demonstrated how large-scale bets on digital capability and AI-ready infrastructure can strengthen productivity, broaden market opportunities and reinforce economic resilience. UK firms that can match this with direct investment towards productivity enhancing technologies will be best placed to capture this next wave of transatlantic growth.

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