Great Britain after the election: Difficult situation for the Labour government

Frankfurter Allgemeine Zeitung Great Britain after the election: Difficult situation for the Labour government Philip Plickert • 6 hours • 3 minutes reading time The "Evening Standard" in a display near 10 Downing Street The British economy and economists have reacted approvingly, but not exuberantly, to the Labour Party's victory. Many reactions spoke of the limited scope for manoeuvre in the state budget that the new Prime Minister Keir Starmer and the designated Chancellor of the Exchequer Rachel Reeves will have. There is not much money for investment. Starmer had promised "change" and more growth. Economists are now asking how these promises will be put into practice. The Confederation of British Industry (CBI) demanded: "Creating sustainable growth should be the new government's key task." The new prime minister has been given a clear mandate to make difficult decisions in areas such as planning reform and the expansion of electricity network capacity, which are necessary to give the economy more momentum, said CBI managing director Rain Newton-Smith. Labour wants to use a new planning system to speed up the issuing of building permits and stimulate housing construction. 1.5 million homes are to be built in the next five years. However, the Tory government had already failed to achieve this goal. The CBI head hopes that the new government will deliver on its promises. German companies are friendly towards the new government, but most are not expecting miracles. This was made clear in a statement by the German-British Chamber of Industry and Commerce in London. According to its managing director Ulrich Hoppe, many company representatives welcome a change of government. "The honeymoon of the new British government will be relatively short, however, because only with a lot of discipline and hard work can the British economy be brought back to previous growth paths," he said. Discipline, particularly on the spending side, seems certain under the new finance minister Reeves. "But there is still some uncertainty in many people's eyes about improving the economic framework." Britain's relationship with the EU should become closer again. "But how exactly this is to be achieved in many areas has so far only been vaguely formulated," said Hoppe. Little hope for more economic growth after Labour's victory Both major parties avoided the subject of Brexit during the election campaign. Labour has ruled out rejoining the EU single market or the customs union. The previous freedom of movement for workers will not be restored either. Labour has also promised to reduce immigration, which has reached record levels in recent years. The high migration pressure was also one of the strongest points of criticism from Nigel Farage's right-wing populist party Reform UK, which became the third strongest party in terms of vote share. The migration issue is likely to continue to have political explosiveness. Several economists said on Friday that they do not expect more economic growth due to Labour's election victory. "The result does not change our outlook for British growth," said Holger Schmieding, chief economist at Berenberg Bank. On average, the economists surveyed by Bloomberg are only forecasting 1.2 and 1.4 percent growth next year and the year after. Schmieding expects a little more. The economy is likely to pick up a little this year. Sanjay Raja, chief economist for Great Britain at Deutsche Bank, said Labour could take advantage of a certain "feel-good factor" if inflation fell and household incomes rose. But the economic tailwind would not be as strong as in 1997, when the change of government to Labour took place with Tony Blair and Gordon Brown. During the election campaign, Starmer promised to pursue a "growth, economy and employee-friendly" strategy. "That will not be easy," said Schmieding. Reliably pragmatic relations with the EU and the reform of the planning system would bring slightly positive contributions to growth. But even then, the budget's room for maneuver would be very limited if Reeves does not want to take on excessive debt. According to the Institute for Fiscal Studies, the medium-term budget plans to date, which Reeves largely intends to stick to, include billions in real investment cuts.