Labour’s landslide victory as expected, but what now?

As expected, the Labour party’s overwhelming victory ended the Conservatives’ 14 years in power. After obtaining 202 seats in 2019, the Labour party has easily passed the 326 seats threshold required for a majority in yesterday’s election. The new government will be able to comfortably pursue its policy agenda. Modest tax increases that will partly financ e some government spending should be broadly neu t ral for growth , but insufficient to ensure a declining public debt over the next five years . The Labour party is likely to consider changes to inheritance tax and capital gains tax as well as some cuts in spending in departments “ unprotected ” by the Labour’s manifesto. As far as the BoE is concerned, a period of relative political and economic stability along with a more cautious fiscal stance and falling inflation should give the BoE at the margin more leeway to loosen its monetary policy (possibly more than under other political outcome), as net tax cuts by the Tories would have be en more inflationary.