As leader of the Labour Party, Starmer secured victory by criticising the economic policies implemented by the Conservative Party over the past 14 years.
However, he acknowledges that there are no quick solutions to the country’s economic problems.
Since the Conservatives came to power in 2010, the UK economy has underperformed, with living standards stagnating.
The recovery following the COVID-19 pandemic has been particularly slow, outpacing only Germany among the major developed nations. With public debt nearing 100% of GDP and taxes at their highest level since the post-World War II era, Starmer has warned that improving the country’s financial situation will require time and tough decisions.
Starmer advocates a cautious approach to economic reform, avoiding a new wave of borrowing, recalling the turbulence experienced by the bond markets under former Conservative Prime Minister Liz Truss in 2022. He and Rachel Reeves, his likely Chancellor of the Exchequer, have ruled out significant tax increases, which limits the government’s fiscal options.
The new government plans to tackle economic stagnation through reforms to the planning system, making it easier to invest in housing and infrastructure, which should boost productivity and increase tax revenue.
The strategy also aims to address the needs of public services, which have suffered from years of underinvestment.
Moreover, Starmer plans to reintegrate those who have left the workforce back into employment, a move that could generate up to £57 billion in tax revenue over five years.
Another part of his plan is to reduce trade barriers with the European Union, though without major changes to the current Brexit deal.
Despite these measures, analysts such as those at Goldman Sachs predict that Labour’s reforms may only have a modest impact on economic growth in the coming years.
The UK economy is expected to grow by 1.2% in 2025 and 1.4% in 2026, figures significantly lower than those of the decade preceding the 2007 financial crisis.
Nevertheless, there are signs of economic recovery.
Following a recession in 2023, the UK is beginning to show signs of improvement, with inflation easing and the Bank of England considering interest rate cuts.
Business and consumer confidence is also strengthening.
Starmer has emphasised that political stability will be crucial in attracting investment to the UK.
With five different Conservative prime ministers in the past eight years, business leaders agree that a stable government could be beneficial for investment.
Investors have shown growing confidence in the UK’s reduced perceived risk, as reflected in the recent outperformance of UK stocks, a sentiment echoed by Laura Foll, portfolio manager at Janus Henderson Investors.
Source: Investing.com / review
Comments