All polls indicate a Labour victory tomorrow, notes Deutsche Bank, with Kier Starmer's party maintaining a near 20-point lead over the Conservatives.
Regardless of the election outcome, the next government will likely benefit from an economic boost, says the German bank, as the UK is out of recession and the economy is stronger than anticipated.
The Office for National Statistics last week confirmed first quarter 2024 GDP growth of 0.7% quarter-on-quarter.
Both household consumption and business investment have risen, with household consumption up 0.4% and business investment up 0.5%.
Additionally, net trade is favouring exports, with the UK surpassing France, the Netherlands, and Japan in total exports.
GDP to grow around 1.5% for two years
GDP growth is expected to remain robust at around 0.4% quarter-on-quarter, aligning with the UK's trend growth rate.
Strong household balance sheets, with real disposable incomes projected to grow by 3% due to tax cuts and slowing inflation, with business investments catching up, are key factors.
The UK's output gap widened last year due to a shallow technical recession, but there are upside risks to the growth forecast of 0.8% this year, bolstered by recent upward revisions to the first quarter GDP data.
Fundamentals healthy
The next government will also inherit stronger fundamentals, says the bank, with healthy household balance sheets and a household savings rate of 11.1%, indicating potential future consumption growth.
Households and corporates have significant cash excess savings, amounting to approximately £170 billion and £58 billion, respectively.
Positive survey activity data, including PMI and the CBI Business Optimism Index, suggest continued growth.
Consumer and business confidence is on the rise. Consumer confidence hit a 33-month high in June and business confidence is above its long-run average.
Deutsche Bank says: “Positive sentiment is expected to drive increases in consumption, employment, and investment, essential for improving public finances.
“GDP growth is projected to be around 1.5% in 2025 and 2026.”
Challenges remain
However, significant challenges remain, says Deutsche Bank.
“Potential growth is lower than two decades ago, and living standards have stagnated since 2017.
“The new chancellor will face high public sector net debt, close to 100% of GDP, and a persistent productivity issue. “
With restrictions on migration, the UK will need to enhance capital and total factor productivity to boost structural growth.
Additionally, addressing climate change will be a costly and critical task.
“The next government will need to make tough economic decisions to prepare the UK for the future.”