UK economists are sceptical about the ability of Keir Starmer’s Labour government to turbo-charge growth, anticipating the slow expansion that blighted much of the past decade will continue, a survey showed.

Economists expect only slightly faster growth with the economy predicted to expand 0.8% in 2024 and 1.3% next year, according to Bloomberg’s monthly survey of 56 forecasters. The projections are up just 0.1 percentage points for both years compared to the previous survey.

The forecasters also raised doubts over whether Labour can boost the UK’s long-term growth prospects, even though they anticipate a looser fiscal policy from new Chancellor Rachel Reeves.

The survey lays bare the huge challenge the administration that took office this month faces in reviving the country’s growth rates. Starmer has promised a blitz of policies with the state opening of Parliament on Wednesday to deliver a jolt to the economy. Those gains are crucial to finance Labour’s promises to bring in the money needed for an improvement in crumbling public services including schools, hospitals and railroads.

While Labour has promised to boost UK growth to the highest in the Group of Seven, it has given only some details on how it expects to achieve the goal. Last week, Labour announced changes to the planning system and the creation of a National Wealth Fund as part of its efforts to aid building and raise investment. The government also hopes that closer ties with the European Union and political stability can give businesses confidence to invest.

“Absent a growth miracle like the one targeted by the government, budget consolidation may prove challenging,” said Dennis Shen, a senior director at Scope Ratings. “Although potential reforms can certainly support medium-run economic growth, our trend-rate-of-growth estimate of 1.5% a year remains unchanged at this stage.”

Only three of the 12 economists that responded to a separate question said that Reeves will succeed in increasing the economy’s sustainable growth rate.

The survey showed that just one of nine economists said they will upgrade their growth forecasts based on Labour’s landslide victory in the July 4 election. Eight out of 11 said they expect looser fiscal policy than indicated in the party’s manifesto.

While forecasters remain unconvinced that Labour can transform the economy’s longer term growth prospects, its budget plans may be helped by a stronger-than-expected recovery from last year’s recession.

Figures last week showed that economy grew 0.4% in May, double the pace expected by economists. It leaves the UK on track for another solid expansion in the second quarter after the 0.7% jump in GDP in the first three months of the year.

Deutsche Bank chief UK economist Sanjay Raja said the starting point for the economy “will likely be a little better than what the Office for Budget Responsibility expected” at its last projections in March. However, he warned of a “deteriorating fiscal picture” despite the stronger growth figures.

“Recent data outturns and market conditioning assumptions will likely erode the previously stated fiscal headroom from the spring Budget,” he said. “With inflation tracking above the fiscal watchdog’s projections, market rate expectations remain meaningfully above those used in the spring Budget.”

  - Bloomberg