05 July 2024

Goldman Sachs upgrades UK growth forecast as Labour sweeps to power

05 July 2024

Goldman Sachs has upgraded its economic growth forecasts for the UK after the Labour Party swept to victory in the General Election.

The investment bank lifted its forecast for the UK’s gross domestic product by 0.1 percentage points to 1.6% in 2025 and another 1.5% in 2026.

Economists said they expect Labour’s policy plans to give a “modest boost to demand growth in the near-term”.

They said: “Reforms to the planning system could boost house-building and productivity; higher public sector investment could lift potential output; and closer trade ties with the EU could mitigate some of the costs of Brexit.

“At the same time, possible further increases in taxation and reduced net migration could weigh on growth. That said, it will be difficult to gauge the magnitude of the effects of these policies until the party sets out further details on its policy agenda.”

Labour swept to power with at least 412 seats, giving it a majority of more than 170.

It was a rout of the Conservatives, who have 121 seats with just two constituencies left to declare a winning MP.

Pantheon Macroeconomics said the new Government offers a 0.25 percentage point “upside risk” to its 1.5% year-on-year estimate of growth for the UK, meaning there is more chance of forecasts improving.

Rob Wood, chief UK economist at Pantheon, said: “Keir Starmer’s majority is large enough to allow him to plot a stable policy course, which should boost business investment and attract greater foreign investment.

“He has a good chance of making major supply-side reforms like cutting planning regulations. But that will all take time to fully implement and impact the economy.”

It comes after leading City bosses, including those at Britain’s biggest energy firm Octopus, the UK’s biggest house-builder Barratt and retail giant Currys, welcomed the new Prime Minister.

David Thomas, chief executive of Barratt, said: “The country urgently needs more new homes, of all types and tenures.

City economists have improved the UK’s growth forecasts (Yui Mok/PA) (PA Wire)

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