A Labour government risks stoking higher inflation – resulting in slower interest rate cuts – warn Goldman Sachs economists.
The analysis by the US investment banking giant raises the spectre of more disappointment for millions of borrowers should Sir Keir Starmer win power.
It comes as separate figures showed UK economic growth appearing to ‘seize up’ as the General Election approaches.
Policy: Kier Starmer’s Labour’s party plans to implement a ‘genuine living wage’ for workers as well as imposing VAT on private school fees
The prospect of June interest rate cuts disappeared even after inflation fell to the Bank of England’s 2 per cent target. Traders are now betting a cut will come in August.
But Goldman casts doubt on the pace at which the Bank will be able to move.
It pointed to Labour’s plan for a ‘genuine living wage’ – though the scale remains uncertain – and VAT on private school fees as having the potential to bump up prices.
It thinks changes to planning rules and public investment could boost growth, and sees a £14billion black hole in spending plans that is likely to mean higher taxes.
Overall, Goldman sees ‘slightly’ stronger growth and inflation in the short-term if Labour wins.
The analysis adds to questions being raised about the party’s plans.
HSBC has said the ‘genuine living wage’ could stoke inflation and the Institute for Fiscal Studies has suggested that Labour plans such as better access to sick pay could create costs for businesses.
Others see an upside should Britain have a stable government with a large majority as Europe is engulfed by political turmoil.
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