Economic challenges ahead of Britain’s new Labour govt
The Labour government inherited a comparatively strong economy
image for illustrative purpose
London: The ascension of the Labour government has injected rare impetus into Britain’s capital market.
On Friday, the first day of the newly-elected Labour government, the domestically-focused FTSE 250 index rose by 0.86 per cent and the country’s 10-year bond yield dipped by 0.8 percentage points, reports Xinhua news agency. The GDP for the first quarter this year increased by 0.6 per cent, and the annual Consumer Prices Index rose by 2 per cent in May, aligning with the anticipated interest rate cut by Bank of England.
The Labour government inherited a comparatively strong economy. However, it also faced an economy with significant inertia. There remains a large gap between the current productivity rate and pre-pandemic levels, and investment rates are low compared to other developed countries. The Labour government faces substantial challenges in revitalising the economy.
Low Investment
Data from the Economics Observatory showed that the overall investment rate in Britain fell from a high of around 23 per cent of the GDP in the late 1980s, to around 17 per cent from 2000 onwards. In contrast, investment rates among its peers in G7 countries remained largely between 20 and 25 per cent.
The primary focus for the new Labour government should be on investment, Tim Besley, Professor of Economics and Political Science at London School of Economics and Political Science (LSE), told.
“When you talk with economic heavyweights or entrepreneurs, they will tell you that it’s very hard to see the strategic direction of the UK economy and the institutional framework that will deliver economic targets,” said Besley.
However, it may take time for Labour to form a coherent industrial strategy and plan.
Steve Nolan, senior lecturer in economics at Liverpool John Moores University, said that the Labour Party fought a cautious campaign and their future economic plans are fairly slim.
Infrastructure could be a key area for attracting investments. The Labour government is set to establish a National Infrastructure and Service Transformation Authority, which will focus on infrastructure delivery and play a critical role in setting the path for development.
