Övünç Kutlu
08 July 2024•Update: 08 July 2024
ISTANBUL
The general election outcome in the UK will not lead to an immediate shift in fiscal policies in the country given the winning Labour Party’s commitment to medium-term public debt reduction, Fitch Ratings said Monday.
"Labour has signalled broad policy continuity in terms of fiscal consolidation," it said in a statement. "This would entail tightening to comply with the existing fiscal rule, which requires a reduction in net public-sector debt/GDP by the fifth year of the rolling forecast period."
Fitch noted that the independent Office for Budget Responsibility in March projected public-sector net borrowing falling to 1.2% of GDP in the financial year ending March 2029, from 4.2% in the financial year 2023, due to higher income from tax collection, and reductions in capital spending and interest payments.
The rating agency, in addition, said the election outcome brings efforts to boost economic growth.
"Economic prospects for 2024 have improved, but managing expenditure pressures without significant additional revenue measures or increased borrowing would depend on a stronger-than-projected cyclical recovery and, over time, the capacity of the incoming government to increase the UK’s growth potential," said the statement.
Fitch noted that its outlook revision of the UK’s AA- rating to stable from negative on March 22 reflected its view that economic policy uncertainty had eased since late 2022.
The Labour Party's campaign emphasized the importance of "a stable policy environment" after a volatile period that saw three different Conservative prime ministers in less than two years, it said, adding that the Labour Party's large parliamentary majority should also ensure political stability in the near term.
The agency reminded that it revised up the UK's 2024 full-year growth forecast by 0.5 percentage points to 0.7% in its June Global Economic Outlook, adding that it estimates GDP growth picking up to 1.7% in 2025 and 1.5% in 2026.
