Britain’s new Labour government, led by Prime Minister Keir Starmer, has pledged to boost economic growth after a landslide election victory.
Jerrymusa.com reports that the task may be challenging due to strained state finances following significant Covid-19 expenditures and energy bill subsidies.
Labour has promised investments in health and education but also emphasizes fiscal responsibility. “We will benefit from the economic recovery,” noted Ashley Webb, UK economist at Capital Economics research group.
New Government Faces Economic Threat
The government aims to avoid repeating the market turmoil caused by the previous Conservative government’s unfunded tax cuts.
Britain’s economy is currently recovering from a mild recession, and inflation is returning to normal. While businesses still face challenges from Brexit, Labour has ruled out rejoining the European single market or customs union.
“I want investors to look at Britain and say it is a safe haven in a turbulent world, a place where I can invest with confidence,” Labour finance spokesperson Rachel Reeves said ahead of the election.
With public debt approaching 100% of GDP, Labour faces pressure to balance the books while investing in growth. “Tax is going to go up” to fund public services, according to Daniel Sopher, senior partner at tax specialists Sopher + Co.
Business leaders and economists urge the government to prioritize economic growth, warning that tax increases may be necessary.
Labour’s leadership may face pressure from its own members to relax budget rules, but analysts believe the markets will not be overly concerned by changes to fiscal rules.
“Obviously the fiscal rules are going to change, the question is how will they change and will they change in a way that is sensible,” said Jonathan Portes, an economist at King’s College London.