The ruling Conservatives will face a daunting challenge, given the considerable slump in the party's popularity

Fiscal concerns will continue to constrain the upcoming new government

Any government will face a difficult post-election environment, as a soaring fiscal gap will narrow the space for support of the economy or lifting the previously rising tax burden. Labour, the most likely winner of the elections, has strayed away from promising outright tax cuts and has instead focused on tighter regulations, including labor market reforms that ban zero-hour contracts and raising the minimum wage, which will complicate the operational environment and is likely to bite into MNCs’ margins. New investments pledges in infrastructure, including green energy and port infrastructure, should, however, create new long-term opportunities.


In a surprise announcement, PM Rishi Sunak called snap elections for July 4, following earlier statements indicating that the elections were more likely to be held in H2 2024. The move comes amid a series of by-election and local electoral defeats for the ruling Conservatives and a massive slump in popularity, raising questions about the timing of the vote. Both parties have pledged to reduce the debt-to-GDP ratio and balance public finances, but campaign promises from Conservatives cast doubt on the fiscal sustainability of their plans. In the meantime, 129 members of parliament have announced that they will not stand at the upcoming elections, with the majority of them Conservative, amid an increasingly high probability that they will not be able to hold onto their previously secure seats. The timing of the vote does not change our current view that Labour is likely to emerge as the winner of the vote, but the new government will face a multitude of issues, the most prominent of which is achieving long-term fiscal sustainability. Businesses need to monitor the elections closely and assess the potential impact of upcoming policy changes on the operational environment and demand from key customers.

Our View

The surprise announcement about the timing of the elections comes amid early signs of a gradual economic recovery, but also acute fiscal issues, with the IMF issuing a warning that the budget faces a GBP 30.0 billion funding gap. Previously solid public revenues performance allowed the UK government to introduce a small series of cuts to the National Insurance rate and has prompted discussions about potentially abolishing national contributions in the long term. Despite the substantial funding gap, the Conservative party has made several controversial electoral promises, including reducing the tax burden on pensions and reinstating a national conscription service, the combined costs of which are estimated at around GBP 5.5 billion. In contrast, Labour has generally avoided discussing potential tax cuts and has instead focused on positioning itself as more fiscally responsible. Key points of the Labour campaign, however, remain plans to tighten labor market regulations, reforming social care, and increasing oversight of transport and utility companies, some of which could significantly transform public procurement processes and increase operational costs for MNCs. Any new government will face significant challenges in developing a long-term fiscal outlook despite early election pledges, and our view remains that fiscal consolidation and spending cuts will be of top priority even in light of the campaign promises to reduce the tax burden. These expectations are also widely shared by financial markets, which have barely reacted to the announcement, given the high likelihood of Labour winning the election, and the fact that no party is promising significant changes to fiscal policy direction.

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