Labour has won with a landslide majority in the 650-seat parliament with Rishi Sunak’s Conservatives suffering the worst performance in the party’s history. After six weeks of an intense election campaign, UK voters have cast their votes and made their decision, punishing the Tories for a cost-of-living crisis, weakening public services, and a series of scandals.
The new government will now be under pressure to deliver the change it has promised and bring tangible improvements.
Markets feel optimistic over the change at Downing Street with Sterling remaining firm on Friday morning. The pound has been strengthening in anticipation of a shift to a stable Labour majority, following a volatile 14-year period of Conservative rule that saw five Prime Ministers within the past nine-years alone. Despite Starmer’s victory, polls have suggested that people have little enthusiasm for him, and he comes to power at a time when Britain is facing a series of very difficult issues.
Results and voter turnout
Labour has won 412 seats, the Conservatives 120, the Lib Dems 71, the SNP 8, and Reform UK 4. The UK election is estimated to have seen a turnout of 60% across the country (some votes are yet to be counted), marking the second lowest turnout in a general election since 1885 and the lowest since the second world war.
Factors deciding election outcomes
There are many factors that affect voting behaviour such as social class, age, the media, as well as long-term factors such as geography, gender, and ethnicity and short-term factors such as the party leader’s image and single-issue voting. Short-term factors that affect voting behaviour are specific to one election and could sway those “floating voters” who remain undecided. For example, a single issue such as the UK’s relationship to the EU, which led many voters in 2015 to support UKIP is one example.
UK voting behaviour has been connected to the so-called ‘north-south divide’ as UK election results have consistently shown that the further north and west voters live, the less likely they are to vote Conservative. People in the south/south-east of the UK tend to be better off as employment rates and incomes are higher and tend to vote Conservative. On the other hand, people in the north/north-west of the UK (including Scotland, Wales and cities such as Liverpool and Manchester), where employment opportunities and income levels are generally poorer tend to vote for parties other than the Conservatives.
Scotland has been a key battleground and played a crucial role in the 2024 UK election. Historically it was dominated by Labour, but there was a move towards the Scottish National Party (SNP) after the 1999 devolution and the 2014 Independence Referendum.Following SNP scandals and Conservative challenges, Labour’s revival in Scotland and Labour’s performance in Scotland have been decisive for achieving a large majority in Westminster.
In terms of ethnicity, the Labour Party has tended to attract voters from ethnic minority groups since the party has been more closely associated with equality legislation and support for immigration.
Leadership and party image: While both Rishi Sunak and Sir Keir Starmer have not been especially popular, Starmer appears to be considered, according to various polls and media, as more competent and trustworthy. Described as managerial, dutiful and boring, Starmer seems to be the right man for the job. While he has been accused by his left critics for his cynicism, broken promises and lack of policies, Starmer pledged to put his country before his political party. Dominic Grieve, a Conservative politician who served as attorney general while Starmer was DPP, commented on his efficiency and managerial ability: “He ran his department very efficiently and effectively at a really difficult time because his budget had been cut. It was genuinely very impressive.” Grieve explained that Starmer “is not bogged down with years of political ideology or baggage. He can see what is wrong and can address it.”
Economy: Voters often assess the ways a government has handled the economy. A strong economy typically benefits the incumbent party, while a weaker economy can lead to a desire for change. In the UK, the effects of the global pandemic, the aftermath of the Brexit deal, and the negative effects of the Russia-Ukraine war on energy prices have hurt the UK economy. GDP growth slowed from 1.6% year-on-year (YoY) in 2019 to 0.1% YoY in 2023. Annual inflation peaked at 11% in November 2022 and the fiscal deficit widened from 2.5% of GDP in 2019 to 6% of GDP in 2023. Gross public debt went from 85% of GDP to 101% of GDP over the same period. Although the decline in the macroeconomic data was partly due to global factors, the mismanagement from Conservative governments has led many voters to support Labour.
Policy proposals: Labour’s manifesto has focused on “stability”, supports wealth creation and is pro-business. Labour leader Keir Starmer has celebrated a “changed Labour Party” and has promised not to raise income tax, National Insurance or VAT. According to a YouGov poll about what people thought of the manifestos, most Britons said they considered the Tories’ campaign promises to be unaffordable (57%), while about half believed the same of Labour’s (47%). Both parties’ plans were also considered “unrealistic”: 62% for the Conservatives and 47% for Labour.
Scandals: Misconduct, corruption, or any scandal involving key figures can sway public opinion dramatically, often to the detriment of the involved party. In the final week of the campaign, a UK election betting scandal continued to draw attention away from policy debates. Five Conservatives, one Labour candidate and seven police officers are being investigated for allegedly placing bets on a July election using inside party knowledge.
Immediate Implications for currency markets, taxation policies, and energy sector nationalisation
Currency markets: Political stability and investor confidence are crucial for currency strength. A clear majority for a party with a strong economic plan can support the pound, while a hung parliament or a victory for a party perceived as economically unstable can weaken it. Sterling could continue to rise due to increased political stability according to MUFG. With the Labour Party winning a large majority of seats, the pound is expected to remain supported. This is because a large majority has given Labour a strong mandate to rule which will lead to more political stability. This element is seen as positive for Sterling, according to Derek Halpenny, head of FX research at MUFG Bank Ltd. He noted that “We have raised our GBP forecasts in part on better political stability ahead and in part on the signs of a stronger rebound in economic growth than we previously expected.” He concluded: “The economic policies put forward by Labour are very cautious and the strategy is clearly to strengthen trust with voters that it can govern and manage the economy. We certainly assume better political stability is on its way with Labour intending to focus on ‘wealth creation’”.
Taxation policies: Immediate post-election periods often see quick implementations of promised tax changes which can affect businesses, investor sentiment and economic activity. Starmer has focused on growth rather than raising more taxes. “Nothing in our manifesto requires tax rises, over and above the ones we’ve already set out,” Starmer said in an interview with Bloomberg on Saturday. “It’s not just a question of tax, it’s also because the focus is on growth,” he said. Nonetheless, the Institute for Fiscal Studies has warned that both Labour and the Conservatives have avoided hard choices on how to pay for their spending promises without raising taxes.
Energy sector nationalisation: Labour’s plan for Great British Energy, a publicly owned, Scottish-based national energy company will be one of Starmer’s six “first step” priorities. The hope is that, if projects are up and running quickly, the party would soon be able to point to “GB Energy-backed” schemes lowering bills for local communities. However, the plan is not to nationalise the energy sector at large. Instead, GB Energy will be just one small player in the market. Starmer aspires to set up a British equivalent of Denmark’s Ørsted, Sweden’s Vattenfall or France’s EDF — energy companies which are owned by their respective governments but operate independently in the free, global market. GB Energy’s initial success will depend on the number of projects that are running during the first parliamentary term of up to five years and whether they are contributing to decarbonising the electricity supply by 2030, as Labour promised.
Labour’s economic policies and long-term outlook
Regardless of who has won the UK election, any future government will be limited by a set of fiscal rules that will dictate its borrowing and spending. These rules, combined with existing issues such as low economic growth, high debt, and historically high taxes, won’t allow the government to improvise. As Benjamin Caswell, a Senior Economist for the National Institute of Economic andSocial Research (NIESR), puts it: “The UK economy is marred by stagnant growth in productivity and output. This poor economic performance puts pressure on the public finances and reduces ‘fiscal headroom’ – the gap between the public finances and proposed spending plans.”
For this reason, Labour will find it hard to drive growth, and make bold tax and spending changes. With little room to change fiscal policy, Labour’s fiscal plans won’t have a major impact on market interest rate expectations or Gilt yields, analysts have conceded. As a result, all responsibility will fall on monetary policy as the main source of growth stimulus.
Monetary policy as potential source of stimulus
However, higher-than-expected inflation will make it difficult for the BoE to cut interest rates as quickly as it would like, which will support Sterling. Inflation is a difficult problem that predates the pandemic and energy crisis, and with wage growth at over 6%, the BoE will be cautious about lowering rates. On the other hand, some analysts are more optimistic about inflation continuing to fall, which will allow the BoE to lower interest rates, which in turn, weaken the pound.
A change in government is seen as positive by markets
Labour will bring a pro-business and pro-EU approach to Downing Street and with the improved macroeconomic outlook, the outlook for the UK market appears to be positive. Since Keir Starmer’s election as party leader in 2020, Labour has embraced a pro-business economic plan to boost productivity and attract investment. Although taxes are estimated to rise for wealthier individuals, the focus will fall on reducing tax avoidance and hardening the rules for taxing non-domiciled residents in the UK.
Ex BoE economist and Shadow Chancellor of the Exchequer Rachel Reeves has assured the business community that the UK will remain supportive of businesses with a strategy for business taxation by the end of the year and ruled out any increase in the corporate tax above 25%. Currently, Labour will be inheriting a fiscal deficit of 6% of GDP and gross debt now above 100% of GDP. The private sector will have to boost investment and increase productivity to support growth. Moreover, Labour wants to restore the relations between the United Kingdom and the European Union, and any improvement will positively impact both economies. If Labour succeeds in improving the UK’s relation with the EU, it will increase the possibility of investment and also limit the negative effect of Brexit on consumption, income and labour productivity.
Conclusion
Starmer’s campaign has been built around the promise of “change,” tapping into dissatisfaction at the state of Britain’s stretched public services and falling living standards – symptoms of a slow economy and political instability. Will he deliver?
We help businesses achieve their financial objectives through tailored solutions delivered by a team of specialists with a tireless work ethic.
Labour has won with a landslide majority in the 650-seat parliament with Rishi Sunak’s Conservatives suffering the worst performance in the party’s history. After six weeks of an intense election campaign, UK voters have cast their votes and made their decision, punishing the Tories for a cost-of-living crisis, weakening public services, and a series of scandals.
The new government will now be under pressure to deliver the change it has promised and bring tangible improvements.
Markets feel optimistic over the change at Downing Street with Sterling remaining firm on Friday morning. The pound has been strengthening in anticipation of a shift to a stable Labour majority, following a volatile 14-year period of Conservative rule that saw five Prime Ministers within the past nine-years alone. Despite Starmer’s victory, polls have suggested that people have little enthusiasm for him, and he comes to power at a time when Britain is facing a series of very difficult issues.
Results and voter turnout
Labour has won 412 seats, the Conservatives 120, the Lib Dems 71, the SNP 8, and Reform UK 4. The UK election is estimated to have seen a turnout of 60% across the country (some votes are yet to be counted), marking the second lowest turnout in a general election since 1885 and the lowest since the second world war.
Factors deciding election outcomes
There are many factors that affect voting behaviour such as social class, age, the media, as well as long-term factors such as geography, gender, and ethnicity and short-term factors such as the party leader’s image and single-issue voting. Short-term factors that affect voting behaviour are specific to one election and could sway those “floating voters” who remain undecided. For example, a single issue such as the UK’s relationship to the EU, which led many voters in 2015 to support UKIP is one example.
UK voting behaviour has been connected to the so-called ‘north-south divide’ as UK election results have consistently shown that the further north and west voters live, the less likely they are to vote Conservative. People in the south/south-east of the UK tend to be better off as employment rates and incomes are higher and tend to vote Conservative. On the other hand, people in the north/north-west of the UK (including Scotland, Wales and cities such as Liverpool and Manchester), where employment opportunities and income levels are generally poorer tend to vote for parties other than the Conservatives.
Scotland has been a key battleground and played a crucial role in the 2024 UK election. Historically it was dominated by Labour, but there was a move towards the Scottish National Party (SNP) after the 1999 devolution and the 2014 Independence Referendum.Following SNP scandals and Conservative challenges, Labour’s revival in Scotland and Labour’s performance in Scotland have been decisive for achieving a large majority in Westminster.
In terms of ethnicity, the Labour Party has tended to attract voters from ethnic minority groups since the party has been more closely associated with equality legislation and support for immigration.
Leadership and party image: While both Rishi Sunak and Sir Keir Starmer have not been especially popular, Starmer appears to be considered, according to various polls and media, as more competent and trustworthy. Described as managerial, dutiful and boring, Starmer seems to be the right man for the job. While he has been accused by his left critics for his cynicism, broken promises and lack of policies, Starmer pledged to put his country before his political party. Dominic Grieve, a Conservative politician who served as attorney general while Starmer was DPP, commented on his efficiency and managerial ability: “He ran his department very efficiently and effectively at a really difficult time because his budget had been cut. It was genuinely very impressive.” Grieve explained that Starmer “is not bogged down with years of political ideology or baggage. He can see what is wrong and can address it.”
Economy: Voters often assess the ways a government has handled the economy. A strong economy typically benefits the incumbent party, while a weaker economy can lead to a desire for change. In the UK, the effects of the global pandemic, the aftermath of the Brexit deal, and the negative effects of the Russia-Ukraine war on energy prices have hurt the UK economy. GDP growth slowed from 1.6% year-on-year (YoY) in 2019 to 0.1% YoY in 2023. Annual inflation peaked at 11% in November 2022 and the fiscal deficit widened from 2.5% of GDP in 2019 to 6% of GDP in 2023. Gross public debt went from 85% of GDP to 101% of GDP over the same period. Although the decline in the macroeconomic data was partly due to global factors, the mismanagement from Conservative governments has led many voters to support Labour.
Policy proposals: Labour’s manifesto has focused on “stability”, supports wealth creation and is pro-business. Labour leader Keir Starmer has celebrated a “changed Labour Party” and has promised not to raise income tax, National Insurance or VAT. According to a YouGov poll about what people thought of the manifestos, most Britons said they considered the Tories’ campaign promises to be unaffordable (57%), while about half believed the same of Labour’s (47%). Both parties’ plans were also considered “unrealistic”: 62% for the Conservatives and 47% for Labour.
Scandals: Misconduct, corruption, or any scandal involving key figures can sway public opinion dramatically, often to the detriment of the involved party. In the final week of the campaign, a UK election betting scandal continued to draw attention away from policy debates. Five Conservatives, one Labour candidate and seven police officers are being investigated for allegedly placing bets on a July election using inside party knowledge.
Immediate Implications for currency markets, taxation policies, and energy sector nationalisation
Currency markets: Political stability and investor confidence are crucial for currency strength. A clear majority for a party with a strong economic plan can support the pound, while a hung parliament or a victory for a party perceived as economically unstable can weaken it. Sterling could continue to rise due to increased political stability according to MUFG. With the Labour Party winning a large majority of seats, the pound is expected to remain supported. This is because a large majority has given Labour a strong mandate to rule which will lead to more political stability. This element is seen as positive for Sterling, according to Derek Halpenny, head of FX research at MUFG Bank Ltd. He noted that “We have raised our GBP forecasts in part on better political stability ahead and in part on the signs of a stronger rebound in economic growth than we previously expected.” He concluded: “The economic policies put forward by Labour are very cautious and the strategy is clearly to strengthen trust with voters that it can govern and manage the economy. We certainly assume better political stability is on its way with Labour intending to focus on ‘wealth creation’”.
Taxation policies: Immediate post-election periods often see quick implementations of promised tax changes which can affect businesses, investor sentiment and economic activity. Starmer has focused on growth rather than raising more taxes. “Nothing in our manifesto requires tax rises, over and above the ones we’ve already set out,” Starmer said in an interview with Bloomberg on Saturday. “It’s not just a question of tax, it’s also because the focus is on growth,” he said. Nonetheless, the Institute for Fiscal Studies has warned that both Labour and the Conservatives have avoided hard choices on how to pay for their spending promises without raising taxes.
Energy sector nationalisation: Labour’s plan for Great British Energy, a publicly owned, Scottish-based national energy company will be one of Starmer’s six “first step” priorities. The hope is that, if projects are up and running quickly, the party would soon be able to point to “GB Energy-backed” schemes lowering bills for local communities. However, the plan is not to nationalise the energy sector at large. Instead, GB Energy will be just one small player in the market. Starmer aspires to set up a British equivalent of Denmark’s Ørsted, Sweden’s Vattenfall or France’s EDF — energy companies which are owned by their respective governments but operate independently in the free, global market. GB Energy’s initial success will depend on the number of projects that are running during the first parliamentary term of up to five years and whether they are contributing to decarbonising the electricity supply by 2030, as Labour promised.
Labour’s economic policies and long-term outlook
Regardless of who has won the UK election, any future government will be limited by a set of fiscal rules that will dictate its borrowing and spending. These rules, combined with existing issues such as low economic growth, high debt, and historically high taxes, won’t allow the government to improvise. As Benjamin Caswell, a Senior Economist for the National Institute of Economic andSocial Research (NIESR), puts it: “The UK economy is marred by stagnant growth in productivity and output. This poor economic performance puts pressure on the public finances and reduces ‘fiscal headroom’ – the gap between the public finances and proposed spending plans.”
For this reason, Labour will find it hard to drive growth, and make bold tax and spending changes. With little room to change fiscal policy, Labour’s fiscal plans won’t have a major impact on market interest rate expectations or Gilt yields, analysts have conceded. As a result, all responsibility will fall on monetary policy as the main source of growth stimulus.
Monetary policy as potential source of stimulus
However, higher-than-expected inflation will make it difficult for the BoE to cut interest rates as quickly as it would like, which will support Sterling. Inflation is a difficult problem that predates the pandemic and energy crisis, and with wage growth at over 6%, the BoE will be cautious about lowering rates. On the other hand, some analysts are more optimistic about inflation continuing to fall, which will allow the BoE to lower interest rates, which in turn, weaken the pound.
A change in government is seen as positive by markets
Labour will bring a pro-business and pro-EU approach to Downing Street and with the improved macroeconomic outlook, the outlook for the UK market appears to be positive. Since Keir Starmer’s election as party leader in 2020, Labour has embraced a pro-business economic plan to boost productivity and attract investment. Although taxes are estimated to rise for wealthier individuals, the focus will fall on reducing tax avoidance and hardening the rules for taxing non-domiciled residents in the UK.
Ex BoE economist and Shadow Chancellor of the Exchequer Rachel Reeves has assured the business community that the UK will remain supportive of businesses with a strategy for business taxation by the end of the year and ruled out any increase in the corporate tax above 25%. Currently, Labour will be inheriting a fiscal deficit of 6% of GDP and gross debt now above 100% of GDP. The private sector will have to boost investment and increase productivity to support growth. Moreover, Labour wants to restore the relations between the United Kingdom and the European Union, and any improvement will positively impact both economies. If Labour succeeds in improving the UK’s relation with the EU, it will increase the possibility of investment and also limit the negative effect of Brexit on consumption, income and labour productivity.
Conclusion
Starmer’s campaign has been built around the promise of “change,” tapping into dissatisfaction at the state of Britain’s stretched public services and falling living standards – symptoms of a slow economy and political instability. Will he deliver?
We help businesses achieve their financial objectives through tailored solutions delivered by a team of specialists with a tireless work ethic.
PART 3 OF 3
Labour’s Landslide Victory: What It means for the UK
Labour has won with a landslide majority in the 650-seat parliament with Rishi Sunak’s Conservatives suffering the worst performance in the party’s history. After six weeks of an intense election campaign, UK voters have cast their votes and made their decision, punishing the Tories for a cost-of-living crisis, weakening public services, and a series of scandals.
The new government will now be under pressure to deliver the change it has promised and bring tangible improvements.
Markets feel optimistic over the change at Downing Street with Sterling remaining firm on Friday morning. The pound has been strengthening in anticipation of a shift to a stable Labour majority, following a volatile 14-year period of Conservative rule that saw five Prime Ministers within the past nine-years alone. Despite Starmer’s victory, polls have suggested that people have little enthusiasm for him, and he comes to power at a time when Britain is facing a series of very difficult issues.
Results and voter turnout
Labour has won 412 seats, the Conservatives 120, the Lib Dems 71, the SNP 8, and Reform UK 4. The UK election is estimated to have seen a turnout of 60% across the country (some votes are yet to be counted), marking the second lowest turnout in a general election since 1885 and the lowest since the second world war.
Factors deciding election outcomes
There are many factors that affect voting behaviour such as social class, age, the media, as well as long-term factors such as geography, gender, and ethnicity and short-term factors such as the party leader’s image and single-issue voting. Short-term factors that affect voting behaviour are specific to one election and could sway those “floating voters” who remain undecided. For example, a single issue such as the UK’s relationship to the EU, which led many voters in 2015 to support UKIP is one example.
UK voting behaviour has been connected to the so-called ‘north-south divide’ as UK election results have consistently shown that the further north and west voters live, the less likely they are to vote Conservative. People in the south/south-east of the UK tend to be better off as employment rates and incomes are higher and tend to vote Conservative. On the other hand, people in the north/north-west of the UK (including Scotland, Wales and cities such as Liverpool and Manchester), where employment opportunities and income levels are generally poorer tend to vote for parties other than the Conservatives.
Scotland has been a key battleground and played a crucial role in the 2024 UK election. Historically it was dominated by Labour, but there was a move towards the Scottish National Party (SNP) after the 1999 devolution and the 2014 Independence Referendum.Following SNP scandals and Conservative challenges, Labour’s revival in Scotland and Labour’s performance in Scotland have been decisive for achieving a large majority in Westminster.
In terms of ethnicity, the Labour Party has tended to attract voters from ethnic minority groups since the party has been more closely associated with equality legislation and support for immigration.
Leadership and party image: While both Rishi Sunak and Sir Keir Starmer have not been especially popular, Starmer appears to be considered, according to various polls and media, as more competent and trustworthy. Described as managerial, dutiful and boring, Starmer seems to be the right man for the job. While he has been accused by his left critics for his cynicism, broken promises and lack of policies, Starmer pledged to put his country before his political party. Dominic Grieve, a Conservative politician who served as attorney general while Starmer was DPP, commented on his efficiency and managerial ability: “He ran his department very efficiently and effectively at a really difficult time because his budget had been cut. It was genuinely very impressive.” Grieve explained that Starmer “is not bogged down with years of political ideology or baggage. He can see what is wrong and can address it.”
Economy: Voters often assess the ways a government has handled the economy. A strong economy typically benefits the incumbent party, while a weaker economy can lead to a desire for change. In the UK, the effects of the global pandemic, the aftermath of the Brexit deal, and the negative effects of the Russia-Ukraine war on energy prices have hurt the UK economy. GDP growth slowed from 1.6% year-on-year (YoY) in 2019 to 0.1% YoY in 2023. Annual inflation peaked at 11% in November 2022 and the fiscal deficit widened from 2.5% of GDP in 2019 to 6% of GDP in 2023. Gross public debt went from 85% of GDP to 101% of GDP over the same period. Although the decline in the macroeconomic data was partly due to global factors, the mismanagement from Conservative governments has led many voters to support Labour.
Policy proposals: Labour’s manifesto has focused on “stability”, supports wealth creation and is pro-business. Labour leader Keir Starmer has celebrated a “changed Labour Party” and has promised not to raise income tax, National Insurance or VAT. According to a YouGov poll about what people thought of the manifestos, most Britons said they considered the Tories’ campaign promises to be unaffordable (57%), while about half believed the same of Labour’s (47%). Both parties’ plans were also considered “unrealistic”: 62% for the Conservatives and 47% for Labour.
Scandals: Misconduct, corruption, or any scandal involving key figures can sway public opinion dramatically, often to the detriment of the involved party. In the final week of the campaign, a UK election betting scandal continued to draw attention away from policy debates. Five Conservatives, one Labour candidate and seven police officers are being investigated for allegedly placing bets on a July election using inside party knowledge.
Immediate Implications for currency markets, taxation policies, and energy sector nationalisation
Currency markets: Political stability and investor confidence are crucial for currency strength. A clear majority for a party with a strong economic plan can support the pound, while a hung parliament or a victory for a party perceived as economically unstable can weaken it. Sterling could continue to rise due to increased political stability according to MUFG. With the Labour Party winning a large majority of seats, the pound is expected to remain supported. This is because a large majority has given Labour a strong mandate to rule which will lead to more political stability. This element is seen as positive for Sterling, according to Derek Halpenny, head of FX research at MUFG Bank Ltd. He noted that “We have raised our GBP forecasts in part on better political stability ahead and in part on the signs of a stronger rebound in economic growth than we previously expected.” He concluded: “The economic policies put forward by Labour are very cautious and the strategy is clearly to strengthen trust with voters that it can govern and manage the economy. We certainly assume better political stability is on its way with Labour intending to focus on ‘wealth creation’”.
Taxation policies: Immediate post-election periods often see quick implementations of promised tax changes which can affect businesses, investor sentiment and economic activity. Starmer has focused on growth rather than raising more taxes. “Nothing in our manifesto requires tax rises, over and above the ones we’ve already set out,” Starmer said in an interview with Bloomberg on Saturday. “It’s not just a question of tax, it’s also because the focus is on growth,” he said. Nonetheless, the Institute for Fiscal Studies has warned that both Labour and the Conservatives have avoided hard choices on how to pay for their spending promises without raising taxes.
Energy sector nationalisation: Labour’s plan for Great British Energy, a publicly owned, Scottish-based national energy company will be one of Starmer’s six “first step” priorities. The hope is that, if projects are up and running quickly, the party would soon be able to point to “GB Energy-backed” schemes lowering bills for local communities. However, the plan is not to nationalise the energy sector at large. Instead, GB Energy will be just one small player in the market. Starmer aspires to set up a British equivalent of Denmark’s Ørsted, Sweden’s Vattenfall or France’s EDF — energy companies which are owned by their respective governments but operate independently in the free, global market. GB Energy’s initial success will depend on the number of projects that are running during the first parliamentary term of up to five years and whether they are contributing to decarbonising the electricity supply by 2030, as Labour promised.
Labour’s economic policies and long-term outlook
Regardless of who has won the UK election, any future government will be limited by a set of fiscal rules that will dictate its borrowing and spending. These rules, combined with existing issues such as low economic growth, high debt, and historically high taxes, won’t allow the government to improvise. As Benjamin Caswell, a Senior Economist for the National Institute of Economic andSocial Research (NIESR), puts it: “The UK economy is marred by stagnant growth in productivity and output. This poor economic performance puts pressure on the public finances and reduces ‘fiscal headroom’ – the gap between the public finances and proposed spending plans.”
For this reason, Labour will find it hard to drive growth, and make bold tax and spending changes. With little room to change fiscal policy, Labour’s fiscal plans won’t have a major impact on market interest rate expectations or Gilt yields, analysts have conceded. As a result, all responsibility will fall on monetary policy as the main source of growth stimulus.
Monetary policy as potential source of stimulus
However, higher-than-expected inflation will make it difficult for the BoE to cut interest rates as quickly as it would like, which will support Sterling. Inflation is a difficult problem that predates the pandemic and energy crisis, and with wage growth at over 6%, the BoE will be cautious about lowering rates. On the other hand, some analysts are more optimistic about inflation continuing to fall, which will allow the BoE to lower interest rates, which in turn, weaken the pound.
A change in government is seen as positive by markets
Labour will bring a pro-business and pro-EU approach to Downing Street and with the improved macroeconomic outlook, the outlook for the UK market appears to be positive. Since Keir Starmer’s election as party leader in 2020, Labour has embraced a pro-business economic plan to boost productivity and attract investment. Although taxes are estimated to rise for wealthier individuals, the focus will fall on reducing tax avoidance and hardening the rules for taxing non-domiciled residents in the UK.
Ex BoE economist and Shadow Chancellor of the Exchequer Rachel Reeves has assured the business community that the UK will remain supportive of businesses with a strategy for business taxation by the end of the year and ruled out any increase in the corporate tax above 25%. Currently, Labour will be inheriting a fiscal deficit of 6% of GDP and gross debt now above 100% of GDP. The private sector will have to boost investment and increase productivity to support growth. Moreover, Labour wants to restore the relations between the United Kingdom and the European Union, and any improvement will positively impact both economies. If Labour succeeds in improving the UK’s relation with the EU, it will increase the possibility of investment and also limit the negative effect of Brexit on consumption, income and labour productivity.
Conclusion
Starmer’s campaign has been built around the promise of “change,” tapping into dissatisfaction at the state of Britain’s stretched public services and falling living standards – symptoms of a slow economy and political instability. Will he deliver?
