The return of British prime Minister David Cameron to Downing Street following a surprisingly straightforward general election victory will add at least £2bn (€2.7bn) to the UK economy, a leading research centre has said.
The short-term benefits of returning what is considered a more enterprise-friendly party to power is fraught with difficulties in the medium term, however.
The result has quelled uncertainty in the aftermath of the election much sooner than was anticipated but will create significant uncertainty over the coming years which will bear down on business investment, according to the Centre for Economics and Business Research.
Two referenda are likely to arise from the result: One to decide Scotland’s future in the UK and another to determine Britain’s place in the EU.
“Business investment should also pick up in the second half of 2015 given the relative decisiveness of the election result in favour of a more pro-enterprise political party,” the centre said.
“All in all the election result should add at least 0.1% to economic growth this year — a boost to GDP of at least £2bn.”
Fears of a 50% top rate of income tax, a mansion tax, and increased regulation of sectors such as banking, energy, and the private residential rental market have dissipated and strong sterling gains against both the euro and dollar could continue.
The upper end of the London housing scheme is also predicted to see a significant bump in prices in the coming months as overseas demand increases in the absence of a prospective mansion tax.
If Britain were to exit the EU, it would have significant implications for both the UK and Irish economies given the importance of Britain as a trading partner for exporters here.
One estimate placed the potential loss to the Irish economy at €4bn should Britain vote to leave the EU.
Even assuming the UK would strike a bilateral agreement with the EU, trade could fall by 22%, according to estimates compiled by ESRI researcher Edgar Morgenroth.
Using 2012 export figures, a 21.6% average impact on exports across the EU would equate to a €3.8bn reduction in Irish exports.
Another challenge facing the Conservative government is to address regional and sectoral imbalances across the UK, with growth far too reliant on London and the wider south-east region.
Boosting growth in northern regions has to be a priority for the newly elected government to boost economic activity and reduce the burden of inequality.
Among the proposals put forward by the think-tank is a reduction in tax rates in some parts of the UK.
“The new Conservative government should be bold and experiment with greater tax differentiation across the UK. Lower rates of corporation or income tax in the north could shift the economic balance of power away from the south in a way that measures such as [proposed high-speed railway] HS2 will never do,” the report released yesterday reads.
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