Britain’s new Labor government pledged on Friday to take immediate action to boost the economy after the centre-left party’s landslide victory in the general election.
However, her work could be hampered by strained state finances following huge spending by the previous Conservative government to protect millions of jobs during the Covid pandemic.
The Labor Party, led by new prime minister Keir Starmer after the end of 14 years of Conservative rule, has promised investment in key areas such as health and education, but has also stressed the need to balance the books.
This after government coffers were further hit by subsidies on energy bills after Russia’s invasion of Ukraine sent oil and gas prices soaring.
“Economic growth was Labour’s mission. It’s now a national mission. Let’s get to work,” Britain’s new Chancellor of the Exchequer Rachel Reeves said on Friday after Starmer made her the country’s first female Chancellor of the Exchequer.
Rachel Reeves: Britain’s first female finance chief
Stability
Starmer will want to avoid a repeat of October 2022, when the then Conservative government’s proposed unfunded tax cuts spooked markets and sent the pound crashing down.
It also sunk the chaotic premiership of Liz Truss, who lasted just 49 days before being replaced by Rishi Sunak.
Truss lost her parliamentary seat in Thursday’s election.
Britain’s economy is currently on a firmer footing after emerging from a mild recession as inflation returns to normal and with Bank of England rate cuts on the horizon.
“Labor talked a lot about their desire to stimulate the economy and help businesses during their election campaign,” noted Dan Coatsworth, investment analyst at AJ Bell.
“Now comes the hard part and delivering on his promises. Public finances are not in the best shape given high debt levels and a lot of hard work will be needed to accelerate economic growth.”
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Eight years after Britain voted for Brexit, businesses are still reeling from the economic fallout from the country’s departure from the European Union, with little prospect of change in the near future.
Starmer has ruled out Britain’s return to the European single market, the customs union or the restoration of free movement of EU nationals.
‘Safe Haven’
“I want investors to look at Britain and say it’s a safe haven in a troubled world, a place where I can invest with confidence in a world where maybe other countries are leaning towards more populist policies,” Reeves said before the vote. in the UK on Thursday. and in her previous role as Labour’s finance spokesman.
Reeves added that “change will only be achieved on the basis of iron discipline.”
Britain’s public debt has flirted with a level totaling 100 percent of gross domestic product in recent months – a situation not seen since the 1960s.
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Heading into the election, Labor won the support of corporate bosses and mainstream UK publications — including the Financial Times — who believe the party can successfully manage the economy.
Business groups hailed Labor’s victory on Friday.
“By working with business, the new government can develop the capacity and capability of industry to deliver the connected transitions beyond net zero, the digital economy and the future of work needed to put the economy on a sustainable development path,” the Confederation of British Industry said in a statement.
The City of London Corporation — the local authority for the capital’s financial district — said it would work with the new government to “deliver high-skilled jobs, opportunities and economic growth across the country”.
Expenses and taxes
Labour’s spending plans include the creation of public Great Britain Energy, aimed at reducing bills as millions of Britons continue to struggle with high living costs.
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The party also has ambitions to increase defense spending to 2.5% of GDP from about two.
According to Daniel Sopher, senior partner at tax consultants Sopher + Co, “taxes are going to go up” to fund public services.
“There is only so much in it that one can add to the debt,” he told AFP.
Source: AFP