Why a Labour government might mean a fall in sterling

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THE British Labour Party is in buoyant mood at its annual conference, expecting to be in power very soon. And it has already started to think about the consequences, including a possible run on the pound if it takes office. But not everyone thinks this is likely; Simon Wren-Lewis, an economist, challenged people to think of “a serious economic reason why stering would fall on the election of a Labour government”. Well, this blogger can think of several. 

1. Labour plans to increase the rate of tax on corporate profits from (what will be) 17% to 26%. That means the profits available to overseas investors will be reduced accordingly. They will demand a lower price to compensate for this lower return—this will either come in the form of a fall in the stockmarket or in the pound, or probably a bit of both.

2. Labour plans to nationalise various utilities (railways, water, the Royal Mail and some energy) and to cancel some private finance initiatives…Continue reading

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