Labour party to face 'uphill struggle' in fight to boost U.K. economy, JPMorgan says

By Louis Goss

The U.K.'s Labour party will cruise to victory but is set to face an "uphill struggle" in its fight to revive Britain's troubled economy, a JPMorgan analyst said Friday.

Keir Starmer's Labour party is widely expected to win a major victory over the incumbent Conservatives in the U.K.'s upcoming general elections, which must be held no later than January 28, 2025.

If it wins, the U.K.'s center-left party is, however, set to find itself heavily-restricted by a lack of fiscal headroom and an unwillingness to reverse Brexit, which will likely see it focus on "low-cost supply-side reforms," JPMorgan economist Allan Monks said in a note.

Those "low-cost supply side reforms," including efforts to overhaul Britain's planning system, will likely have a limited impact on U.K. growth in the near term, Monks said.

Under Keir Starmer, Labour has adopted a risk-averse strategy, in seeking to appeal to disaffected Conservatives, in what marks a major divergence from his left-wing predecessor Jeremy Corbyn, who promised far-reaching economic reforms.

In a note, Monks explained that if it wins the election, Labour will likely stick to its current course, in shying away from increasing taxes -- which are already at record levels -- meaning it will have limited options available to drive a "big-bang" in the U.K.'s economy.

Labour is also unlikely to pursue a reversal of the U.K.'s exit from the European Union, meaning it will have to pursue a limited selection of lower-risk policies, such as efforts to overhaul Britain's planning system, if it wants to drive up economic growth.

The party's options are even more limited by the fact the Conservatives have already implemented many of the growth-driving supply-side reforms, having already significantly deregulated the economy since entering power in 2010, Monks said.

Instead, the options Labour will have available -- including long-term investments in training and education -- will likely take years before having a visible impact on the U.K.'s growth.

At the same time, many of the problems Britain faces are the result of wider macroeconomic trends, which Labour will likely struggle to fight against due to its unwillingness to reverse Brexit and its fiscal constraints.

GDP data released earlier on Friday showed the U.K. economy rose by 0.1% in February from an upwardly revised 0.3% increase in January. But against the three months to February from a year ago, GDP is down by 0.1%.

Equities in the U.K. trade at just 11.7 times estimated 2024 earnings, according to Citigroup estimates, compared to 19.1 in the developed world and 21.9 times in the U.S.

Shell's (SHEL)CEO has threatened to move its primary listing to New York if valuations don't improve.

-Louis Goss

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04-12-24 0727ET

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