After 14 years of a Conservative-led government, a change to Labour will mark a notable difference in UK politics. Despite the change in power, we expect the next government to follow broadly prudent economic policies. Nevertheless, the challenges that the next government will face are significant, including growing the economy, improving public finances and services, and strengthening energy security. In this commentary, we take a look at these three key challenges for the new government and the policy pledges that the Labour Party presented in its manifesto during the election campaign, which could potentially have credit rating implications for the UK (rated AA, Stable Trend).

Key Highlights:

  • Improving growth would be at the core of the next government. Labour is proposing an industrial strategy and an infrastructure investment programme, alongside plans to step up clean energy.
  • Reducing the fiscal deficit and public debt ratio will remain another key challenge. Labour is committing to the fiscal rules.
  • In our view, downside risks to Labour’s plans include execution risks and weak effectiveness. Lower-than-expected growth poses risks to the fiscal outlook.

“To address three key challenges in the UK, Labour has pledged ambitious plans to grow the economy, step up clean energy, and return public finances to a sound position.,” said Adriana Alvarado, Senior Vice President in the Global Sovereign Ratings Group. “But the plans are not without risks. These range from execution risks and a failure to attract private investment to uncertainty over some revenue measures.”

From DBRS Morningstar.

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