Somebody recently wrote a comment (apologies for forgetting who or where) to the effect that in rejecting the Tories and (by an underwhelming plurality) voting for a Labour government, Brits had replaced a government they despised with a government they hate.
The collapse in approval for the country’s new prime minister, Keir Starmer, an authoritarian apparatchik, appears to have broken all modern records. His honeymoon with the electorate has given off the vibes of a divorce, with one key difference: Thanks to Britain’s electoral system, this is the government that the U.K. will be stuck with until 2029.
The government’s new budget confirms the reversion of the U.K to a big-state model, and that process is unlikely to stop at this point. The adverse reaction in the markets was well-deserved.
UK bonds, stocks and the pound tumbled as investors dumped British assets in a swift rebuke of the new Labour government’s willingness to run up borrowing and risk faster inflation.
The selloff propelled short-term borrowing costs to their highest level since May as investors priced in fewer interest-rate cuts from the Bank of England in response to Chancellor Rachel Reeves’ Wednesday budget. The rates repricing sent ripples across UK assets, with the FTSE 250 Index suffering its worst day since early August and the pound falling against all major peers.
A report from the powerful OBR (Office of Budget Responsibility) gives some of the reasons why (via the Daily Telegraph). Contrary to Labour’s pre-election promises in which the party promised that its top “mission” was to “secure the highest sustained growth in the G7,” the OBR forecast that, once adjusted for the U.K.’s massive immigration rate, per capita GDP growth (and that’s the number that matters) will average 1.2 percent a year over the next decade, compared with 1.7 percent for the U.S.
Rachel Reeves had talked about the need to restore Britain’s finances (its debt, at just under 100 percent of GDP, is certainly too high). Unfortunately, the OBR believes that the effect of her changes will be to increase debt still further.
Of course, taxes are rising, and “our” National Health Service is getting a massive infusion of cash.
A number of European economies are either in or headed toward tough times. Britain’s is unlikely to prove an exception.