London, July 5, 2024 – Britain’s newly elected Labour government, led by Prime Minister Keir Starmer, faces a daunting task in reviving the country’s economy after clinching a decisive election victory over the Conservatives.
The centre-left administration has vowed immediate action to spur growth, but its efforts could be hampered by strained government finances following the extensive COVID-19 pandemic response.
The Labour Party has pledged significant investments in key areas such as healthcare and education, while also stressing the need to balance the national budget. This challenge has been further complicated by the fallout from Russia’s invasion of Ukraine, which triggered a surge in energy prices and necessitated costly consumer subsidies.
Starmer will be keen to avoid a repeat of the market turmoil that engulfed the previous Conservative government under Liz Truss, whose proposed unfunded tax cuts spooked investors and contributed to her rapid downfall. With the economy now on a more stable footing after exiting a mild recession and as inflation moderates, Labour is expected to benefit from the recovery, according to analysts.
However, the lingering impact of Brexit continues to weigh on businesses, who lament the economic disruption caused by the UK’s departure from the European Union. Starmer has already ruled out rejoining the EU’s single market or customs union, as well as restoring the free movement of EU citizens.
In a bid to reassure investors, Labour finance spokesperson Rachel Reeves has said the party wants Britain to be seen as a “safe haven” for investment, promising “change will be achieved only on the basis of iron discipline”. This prudent approach reflects the party’s recognition of the substantial public debt burden, which has reached levels not seen since the 1960s.
As the new government takes office, business leaders have urged Starmer to prioritize economic growth, with the Confederation of British Industry and manufacturers’ group MakeUK calling for swift action to boost investment and productivity. The City of London Corporation has also called on the Prime Minister to place the financial sector at the forefront of Labour’s growth plans.
Funding for Labour’s agenda, including the creation of a publicly-owned energy company to help lower household bills, will likely require tax increases, according to industry experts. However, with the party enjoying a strong parliamentary majority, there could be pressure from its own members to relax fiscal discipline, posing a potential risk.
Overall, Starmer’s government inherits a complex economic landscape, requiring a careful balancing act between driving growth, restoring public finances, and addressing the lingering impacts of Brexit. The path ahead will be challenging, but the new Prime Minister will be keen to demonstrate his party’s competence in managing the nation’s economy.
