The recent election of the Labour government has brought a surge of momentum to Britain’s capital market. On the first day of the new government, the domestically-focused FTSE 250 index saw a rise of 0.86 percent, and the yield on the country’s 10-year bonds fell by 0.8 percentage points, according to Xinhua news agency.
In the first quarter of this year, the GDP grew by 0.6 percent, while the annual Consumer Prices Index increased by 2 percent in May, supporting expectations of an interest rate cut by the Bank of England.
The Labour government has taken over a relatively strong economy, but it faces the challenge of addressing economic inertia. Productivity remains below pre-pandemic levels, and investment rates are low compared to other developed nations. Revitalizing the economy will be a significant task for the new government.
Investment has been notably low, with data from the Economics Observatory indicating that Britain’s overall investment rate fell from around 23 percent of GDP in the late 1980s to about 17 percent from 2000 onwards. In comparison, investment rates in other G7 countries have mostly stayed between 20 and 25 percent.
Tim Besley, Professor of Economics and Political Science at the London School of Economics and Political Science (LSE), emphasized that the new Labour government should prioritize investment. “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,” Besley said.