The UK government has reiterated its commitment to substantial investment after the Bank of England (BofE) forecast troubled times ahead for the country’s economy.
GDP growth as of November 2024 was ‘weaker than expected’, the BofE revealed today (6 February), citing signs that business and consumer confidence in the economy has dropped.
In a boost to consumers, the bank rate or base rate – the rate which UK banks use as a baseline when determining their own interest rates on loans and mortgages – has been slashed by 0.25% from 4.75% to 4.5%.
Though this will ease burdens on the average consumer, the news of economic stagnation will not be welcome to either the person on the street or the government. The Labour government of Keir Starmer, which has now been in power for over half a year, has economic growth as the focal point of its policy.
Financial services and technology are in turn at the heart of these ambitions, alongside planned investment in areas like the green economy, healthcare and infrastructure. Plans around finance have crystallised into legislation, with bills in the House of Commons focusing on data use and sharing and digital assets.
Commenting on the rate cut, Rachel Reeves, Chancellor of the Exchequer, said: “This interest rate cut is welcome news, helping ease the cost of living pressures felt by families across the country and making it easier for businesses to borrow to grow.
“However, I am still not satisfied with the growth rate. Our promise in our Plan for Change is to go further and faster to kickstart economic growth to put more money in working people’s pockets.
“That’s why we are taking on the blockers to get Britain building again, ripping up unnecessary regulatory barriers and investing in our country to rebuild roads, rail and vital infrastructure.”
Payments and politics
The Conservative government has been critical, unsurprisingly due to the nature of politics, of Labour’s economic goals. In a statement today, the opposition’s Shadow Chancellor, Mel Stride, said that Labour’s ‘disastrous budget is likely to mean fewer rate cuts this year than previously anticipated’.
He added that “the Conservatives will back business and our nation of entrepreneurs to create jobs and wealth”.
“That is the only way to grow our economy so everyone can have a more secure future.”
So how exactly do financial services fall into Labour’s economic growth plans? As stated above, Starmer and Reeves’ government has a number of financial and technological policy plans it hopes will make a contribution to British economic growth.
Much of these could be of benefit to the fintech sector, though the overall business reception to the government’s first budget in Autumn, referenced by the Conservatives’ Stride, was not entirely rosy due to tax increases.
Labour’s election manifesto back in July 2024 included pledges on Open Banking, AI and retail banking. Since coming into power the party has introduced a policy of rolling out retail banking hubs and some notable pieces of legislation.
The Digital Information and Smart Data Bill in July centred on a revival of digital ID and creation of data centres, supporting AI and Open Banking plans. This was followed by the Data Use and Access Bill which aims to leverage data sharing across the British economy.
Meanwhile, the government’s ambitions around taxation and investment have been written into the Finance Bill. This sits alongside its policy of attracting businesses and investors to set up shop in the UK, something where some progress has been made such as Brazilian challenger bank Neobank weighing up a domicile.
Labour’s tenure has not gone by without controversy though, including in the area of financial services. The government suffered an embarrassment last month when Tulip Siddiq, the City Minister – whose remit includes anti-corruption in finance – resigned amid allegations of her involvement in corruption in Bangladesh.
Overall, the economic impact of Labour’s legislation on financial services, whether good or bad, will probably not be felt for some time. Policies are not yet fully enacted, and legislation has not even passed through parliament let alone been implemented.
Something that is always clear though is that the general public view the government and vote through the lens of economic success. Labour will need its policies, whether around financial services or not, to have an impact on the economy sooner rather than later if it hopes for a long-lasting government.
The party may have some luck as the BofE has projected a return to growth by the middle of the year. This is not the only factor the government needs to keep in mind though, as inflation continues to bite into many consumers’ wallets.
Alaistair Douglas, CEO of Totally Money, a personal finance app, comments on the UK’s fiscal outlook: “Following a sustained period of rising costs and higher interest rates, a 0.25% cut is unlikely to make a real material difference on people’s finances.
“Most mortgage lenders will have already factored this into their pricing, while some banks have already started reducing savings rates. While pushing big projects like a £78bn Oxford-Cambridge Growth Corridor, a new Heathrow runway, and a £20m investment in rocket-maker Orbex is a good thing, the government also needs to encourage growth from a ground level.”
