UK New Government Faces Balancing Act Between Growth and Inflation

The UK's new government is facing a challenging balancing act as it attempts to spur economic growth while containing inflation, according to Qatar National Bank (QNB).

In its weekly economic commentary, QNB noted that the upcoming September decisions will be closely watched for how the new government balances competing risks. Containing stagflationary pressures depends not only on the BoE's decisions but also on the coherence of the wider policy framework adopted by Prime Minister Andy Burnham and Chancellor John Healey.

The bank said that reassuring markets of its fiscal discipline while pursuing growth and economic model ambitions will be critical for the new government. The UK economy is exhibiting clear stagflationary risks, with economic growth barely in positive territory and consumer price inflation remaining above the BoE's 2% target.