There is great curiosity about the possible repercussions of political changes on the economy, in particular on theinflation and on the growth UK. According to experts at T. Rowe Price, the Labour government will take a cautious approach to fiscal policy and push for labor market reform. In detail, some policies could keep inflation above the ceiling, but other reforms – especially supply-side – could support economic growth in the medium term.
The Labour government should stick to the current tax ruleslinked to the reduction of public debt as a percentage of GDP within five years. There is little room for maneuver at the fiscal level, so Sir Starmer is unlikely to be able to announce spending increases or tax cuts. Expectations are not Lucullan: unless there are dramatic upheavals, economic policies will have a minimal impact on the numbers. The approach will certainly be cautiousthis means that in the event of a spending deficit, a tax increase will be foreseen and not an increase in the amount of borrowed funds.
As for reforms, the labour market reform will put the spotlight on the increase in the minimum wage and its link to inflation. Aid to the British on low incomes, so as to reduce social inequalities. Particular attention will also be paid to building reforms, aimed at increasing the growth rate of the economy, but without biting off more than one can chew to avoid unpleasant surprises. It is impossible not to dwell on the relationship with the EU: there will be no attempt to cancel Brexit, but there will be opportunities to forge closer ties with Brussels. As pointed out by Nomura experts, possible trade agreements but also those in defense, security, education, energy, research and development are on the table.
In short, the Labour government will not overturn the British line, at least for now. A good sign for market confidence. It will certainly take time to accelerate reforms to support the economy, experts reiterate. Citizens’ trust in Sir Starmer was reaffirmed by the vote, but now the hard part begins: it remains to be seen whether the recipes put forward by the opposition benches will be successful or not.
TheVermilion.com is also on Whatsapp. Just click here to subscribe to the channel and always be updated (free).