Fitch says UK general election outcome not expected to lead to immediate shift in fiscal policies

(MENAFN) The general election outcome in the UK is not expected to lead to an immediate shift in fiscal policies, according to Fitch Ratings. Despite the Labour Party's victory, the party has shown a commitment to medium-term public debt reduction. In a statement, Fitch noted that Labour has indicated a broad policy continuity regarding fiscal consolidation. This means adhering to the existing fiscal rule, which mandates a reduction in net public-sector debt as a percentage of GDP by the fifth year of the rolling forecast period.

The independent Office for Budget Responsibility projected in March that public-sector net borrowing would decrease to 1.2 percent of GDP by the financial year ending in March 2029, down from 4.2 percent in the financial year 2023. This reduction is attributed to higher income from tax collection, as well as cuts in capital spending and interest payments. Additionally, Fitch highlighted that the election outcome is likely to support efforts to boost economic growth.

The statement from Fitch also mentioned that while economic prospects for 2024 have improved, managing expenditure pressures without significant additional revenue measures or increased borrowing will depend on a stronger-than-projected cyclical recovery. Over time, it will also depend on the new government's ability to enhance the UK's growth potential. Fitch's outlook revision of the UK's AA- rating to stable from negative on March 22 was based on the view that economic policy uncertainty had lessened since late 2022.

The Labour Party's campaign focused on maintaining a stable policy environment following a turbulent period marked by three different Conservative prime ministers in less than two years. Fitch believes that the Labour Party's large parliamentary majority should help ensure political stability in the near term. Furthermore, Fitch revised its forecast for the UK's full-year growth in 2024, increasing it by 0.5 percentage points to 0.7 percent in its June Global Economic Outlook. The agency estimates GDP growth will pick up to 1.7 percent in 2025 and 1.5 percent in 2026.

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