Next government to benefit from economic tailwind

The next government, which the polls ahead of the election on 4th July suggest will be a Labour one, will benefit from a combination of lower inflation, lower interest rates and faster economic growth than most are expecting. We think that a fall in CPI inflation from 2.0% in May to around 1.5% by the end of this year will prompt the Bank of England to cut interest rates from 5.25% to 3.00% next year, rather than to 4.00% as investors expect. And the boost to activity from lower inflation and interest rates explains why we are more optimistic than most by expecting the economy to grow by 1.0% this year and 1.5% in both 2025 and 2026. While tax revenues and public spending may both be a bit higher under a Labour government, the economy will probably tread a similar path over the next couple of years.

We're holding a 20-minute online briefing the morning after the general election (9.30am BST on Friday 5th July) to discuss what the election result means for the economy and the financial markets. (Register here.)