On May22, 2024, British Prime Minister Rishi Sunak called
snap elections for July 04, 2024. Polls suggest that the opposition Labour
Party—led by the centrist MP Keir Starmer—will sweep to victory, putting an end
to 14 years of Conservative leadership. But what are Keir Starmer’s economic
policies?
Thus far, Starmer has focused on small-scale policy
pledges, such as hiring extra teachers, cutting hospital waiting times, and
improving border security—a cautious approach to policymaking that contrasts
with the large challenges the country faces.
Sluggish
economic growth
One key challenge for Starmer will be improving Britain’s
economy. After easily and consistently outperforming the Euro area economy in
the years prior to the 2016 Brexit vote, the Britain has underperformed since.
This is despite the tailwind of a population which has boomed by around 2.5
million in the intervening years on surging immigration from outside the EU.
Analysts forecast Britain GDP growth to roughly track Euro
area GDP growth over our forecast horizon to 2028. Given higher population growth
in the UK, this means the Britain’s GDP per capita growth will actually lag
behind that of the Euro area. Starmer has pledged to make Britain the G7’s
top-performing economy; but analysts see little chance of this happening. That
said, the labor market will be one saving grace: The unemployment rate is
hovering close to 4% and should remain there in the coming years, which would
be below the G7 average.
Strained
public finances
Government finances are likely to present Starmer with
further difficulties. Weak growth, together with rising spending pressure from
an aging population and the Covid-19 pandemic, has translated into a large
budget deficit and stubbornly high public debt in recent years. And public debt
is set to stay above 100% of GDP over our forecast horizon.
This will likely tie Starmer’s hands and prevent lavish new
spending commitments—particularly given the still-fresh memory of the ill-fated
attempt by former PM Liz Truss to play fast and loose with fiscal
discipline, which resulted in a sharp spike in market interest rates.
Damaged
cross-Channel trade ties
Finally, Starmer will have to grapple with the Britain-EU
relations. The Britain-EU trade deal has led to a raft of non-tariff barriers
on both goods and services trade with Europe which have hampered both British
exports and investment into the country.
While Sunak has succeeded in making ties with Brussels more
cordial following persistent political frictions under the premiership of Boris
Johnson, the trade deal remains threadbare. A Labour government would likely
look to work more closely with the bloc in certain economic sectors, but has
pledged not to region the EU, the Single Market, or the customs union, which
will continue to hamper exports and investment ahead.
Insight
from Analysts
“Much will depend on
the size of Labour’s potential majority: a comfortable majority would make some
of the party’s policies, such as overhauling the labour market, realistic and
actionable.
However, few of the Labour members of parliament (MPs) that
will end up in government as junior ministers have experience in government.
Labour will face significant challenges, given that many of the major issues
facing the next administration will require large amounts of money to fix
(including the National Health Service). Its period in office is therefore
likely to be challenging.”
Economic
situation
“The Britain economy
has underperformed the US and the Eurozone since the start of the pandemic. The
slump in 2020 was deeper and the subsequent recovery levelled off in 2022 even
more so than in the Eurozone in the wake of the surge in energy and food
prices. The strong Q1 GDP data partly correct an unexpectedly weak finish to
2023. The sharp 2.3% drop in imports, which boosted the net trade component in
Q1, was probably a one-off. However, the data also suggest that the UK economy
may have started to make up some of the lost ground.