If she can do more to convince markets her plans are sensible – particularly if they are accompanied by painful tax rises – then those borrowing costs could fall further, according to Michael Saunders, a former Bank of England policymaker now with Oxford Economics.
“Such a shift would deliver a more credible route to meet the fiscal rules than the existing fiscal plans,” he says. “It probably would help lower bond yields and market interest rate expectations.
“In turn, lower bond yields could yield a windfall of lower debt service costs for the Government.”
Chris Sanger, head of global tax policy at EY, says the “clear set of principles and policies” set out by Labour well before the election have stood the UK in good stead.
“There are clear messages being given by the Government today about wanting to attract investment, and there are also clear commitments not to raise the tax rates of income tax, National Insurance, corporation tax and VAT.”
To its benefit, Labour has come to power just as other nations look wobbly.
This encapsulates the cut-throat competition of financial markets in that a country does not need to look stable, merely less unstable than the nation next door.
France has provided the ideal backdrop as Emmanuel Macron’s general election generated immediate volatility.
Germany’s government, while considerably less indebted than France’s, is still fraught with arguments over its finances, undermining confidence in the economy.
The US has also been on an extraordinary debt binge under Joe Biden, which is likely to continue regardless of whether Donald Trump or Kamala Harris wins the presidential election in November.
Tim Sarson, KPMG’s UK head of tax policy, says instability on the European Continent has helped Britain, as well as uncertainty over what a second Trump presidency could mean for the world’s biggest economy.
“The UK is not seen as the sick man of Europe any more,” he says. “It’s seen as a stable, understandable place to be and this has led to increased confidence.
“Talking to Europeans in particular there is a sense that European politics might be moving in the wrong direction and that the UK might be becoming a bit of a liberal haven again.”
Sarson adds that French parliamentary elections last month triggered fears among some high rollers, many of whom feared success for the hard Right.
“A couple of people actually said to me, ‘I might be jumping into one of those small boats across the Channel if Marine Le Pen wins next weekend.’”
This is also reflected in currency markets. The pound recently hit its highest level in two years against the euro and in one year against the dollar.
