Generali joins a large group of analysts who believe that the UK election will have little impact on the country’s economic indicators.
After the first round, the French elections will remain the focus of many investors, but Martin Walbourg, chief economist at Generali AM, notes that “there will also be a general election in the UK on July 4, and that since 2010, the Conservatives have ruled the country.”
However, opinion polls overwhelmingly show that there will be a change from a centre-right Labour government to a centre-left Labour government, and the next election is likely to give Labour a very comfortable majority.
With the government’s current fiscal plans, “the primary balance is expected to improve, but since the average public debt rate is unlikely to keep pace with nominal GDP growth, the debt-to-GDP ratio is expected to rise to 110% by 2029,” the economist recalls.
Labour’s fiscal plans do not look very different from current ones, suggesting that the expected debt trajectory will not change significantly. It is clear that Labour, with its large majority, may be inclined to pursue a slightly more expansionary policy than is set out in its government programme.
But Walburg believes that “the lesson of the 2022 Truss mini-budget crisis has been learned and investors have good reason to focus more on the outcome of the French election.” Former Prime Minister Liz Truss said she wanted to move forward, with a strong overhaul of the tax code, which aimed to cut the IRS’s payrolls sharply on the highest-paid and richest people in order to boost productive investment. Sterling was immediately pressured, and it was not long before criticism came in – particularly from the Bank of England. The consequences did not take long: Truss ended up resigning, making way for the current government led by Rishi Sunak, which also failed in terms of perception to go beyond the failed act of her predecessor.
However, in the longer term, debt ratio expectations could impact the rating. [da dívida do Reino Unido]which is currently AA from Fitch and Moody’s and AA from Standard & Poor’s,” concludes economist Generali.
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