As a new UK government prepares to take office on Friday, key questions arise regarding taxes, relations with the EU, and planning reform, says UBS
Here's what the Swiss bank's chief investment office expects...
Taxes
The primary concern is whether taxes will increase.
The answer is yes, regardless of the electoral outcome.
Labour has announced specific tax hikes and a significant impact will come from the ongoing policy of freezing tax thresholds for the next five years.
Although Labour hasn’t committed to altering major taxes like VAT, NICs, and income tax, they remain flexible given the unpredictability of the future.
The new government will aim to avoid high-profile tax increases, focusing instead on building trust and credibility for future elections.
To prevent severe public sector spending cuts, additional revenue will likely be required, potentially through higher growth, lower borrowing costs, or more stealth taxes.
EU Relations
Another important question is the approach to the EU. A new government is expected to pursue a closer relationship to facilitate trade, but this will be a gradual process.
Current EU elections and internal political issues, particularly in France, mean any significant trade negotiations will take time. Change is anticipated but not immediate.
Planning Reform
Regarding planning reform, there is anticipation of changes, though the extent remains uncertain.
Achieving housebuilding targets of 1.5 million new homes over the next five years is challenging and requires extensive legislation that could provoke opposition.
If met, this could benefit the economy over time. However, the ageing infrastructure also demands attention to meeting climate goals, suggesting that planning reform alone won’t be a quick fix for economic growth.
Investor Perspective
For investors interested in UK stocks, bonds, or the pound, the primary concern is the stability of public finances.
As long as there are no unfunded tax cuts or spending increases and the policy outlook remains stable, positive sentiment towards the UK is expected to continue improving.