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A Labour government risks fuelling higher inflation, which would result in slower interest rate cuts, Goldman Sachs economists warn.
Analysis by the US investment banking giant raises the spectre of further disappointment for millions of borrowers if Sir Keir Starmer comes to power.
This comes as separate figures show UK economic growth appears to be “stalling” as the general election approaches.
Politics: Kier Starmer’s Labour Party plans to implement a ‘genuine living wage’ for workers, as well as impose VAT on private school fees
The prospect of interest rate cuts in June has faded even after inflation fell to the Bank of England’s 2% target. Traders are now betting on a cut in August.
But Goldman questions the pace at which the bank will be able to act.
He pointed to Labour’s plan for a “real living wage” – although the scale remains uncertain – and VAT on private school fees as elements that have the potential to push up prices.
He believes changes to planning rules and public investment could boost growth, and sees a £14bn black hole in spending plans that is likely to mean higher taxes.
Overall, Goldman expects “slightly” stronger growth and inflation in the near term if Labor wins.
The analysis adds to the 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 Labour plans such as better access to sick pay could create costs for businesses.
Others see an advantage if Britain has a stable government with a large majority while Europe is mired in political turmoil.
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