The stronger-than-expected rebound in GDP in Q1 and the improving outlook for households suggests the next government, which the polls ahead of the election on 4th July imply will be a Labour one, will benefit from the economic recovery being a bit stronger than most analysts expect. What’s more, our view that CPI inflation will fall from 2.0% in May to around 1.5% by the end of this year explains why we think interest rates will fall from 5.25% to 3.00% next year, rather than to 4.00% as investors expect. While taxes and public spending may be slightly higher under a Labour government, the path for the economy probably won't be much different.
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