But Starmer — who met with Biden at the White House on Wednesday — inherited an economy showing the strains of more than a decade of political turmoil, inadequate business investment and sclerotic government planning. It also lacks a ready source of cash.
The economic climate represents “the worst set of circumstances since the Second World War,” Rachel Reeves, the first female chancellor of the exchequer, or finance minister, said on Monday. Adjusted for inflation, wages are largely unchanged since 2007, according to the Center for Economic Performance, a research institute. The average German is now 20 percent richer than the typical citizen in Britain.
“The U.K. is not in a quick-fix situation. Most people think it will take the best part of a decade to see material improvement happen,” said David Page, head of macroeconomic research at AXA Investment Managers in London. “But I think there is also a hope now, and this is different, that you could see it emerge in the next 10 years.”
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Ms. Reeves moved quickly this week to underscore the urgency of the challenge, calling economic growth “our national mission” and saying there is “no time to waste.” But she has vowed to abide by informal fiscal rules that will limit Labor’s ability to spend freely, given the country’s debt burden. Her goal is to use modest amounts of public money to attract private capital.
The roots of Britain’s economic problems lie in weak productivity growth, economists say. Equipping workers to produce more goods every hour is key to expanding the economy and raising living standards. And it is what has been lacking in Britain’s recent performance.
The typical American worker produced 23 percent more than his or her British counterpart last year. That gap has more than doubled since 2007. French and German workers also outperform their British counterparts.
British productivity has risen steadily for nearly three decades but has stagnated since the 2008 financial crisis. Government austerity and recurring political crises that followed the Great Recession have discouraged companies from investing in making workers more efficient, economists said.
In the United States, business investment has increased by more than a third since 2016, nearly seven times the increase in the UK, according to government statistics.
“What does that mean? It means you’re working with outdated equipment and less of it,” said Rob Wood, chief U.K. economist for Pantheon Macroeconomics in Newcastle upon Tyne.
The pandemic — and government budget cuts that have left the National Health Service understaffed — have also hit productivity. There are 754,000 more working-age people out of work now compared with before the pandemic, according to a House of Commons analysis. Many are among the more than 6 million Britons who are waiting to see a doctor, according to the British Medical Association.
Britain’s problems are the legacy of years of interplay between public and private choices. The country’s overly large financial services industry shrank after the 2008 crisis, making credit harder to obtain than elsewhere.
The government faced the crisis with an “era of austerity”, which damaged public services and hampered economic growth.
“We have learned that public austerity has destroyed the private sector as well. We need to invest,” said David Blanchflower, a professor of economics at Dartmouth College who served on the Bank of England’s monetary policy committee before the 2008 crisis.
Brexit — the 2016 decision to leave the European Union — and its implementation have consumed three prime ministers over nearly a decade and continue to darken the economy.
Raising trade barriers against its biggest trading partner will shrink the UK economy by 4% and leave exports and imports about 15% lower than if the country had remained in the EU, according to the Office for Budget Responsibility, an official agency.
Government instability has been an impediment to growth. Since 2010, Britain has had five prime ministers, seven chancellors, nine cabinet ministers for business and numerous long-term economic plans.
Last autumn, Prime Minister Rishi Sunak cancelled the second half of a high-speed rail line intended to link London with northern cities. First proposed in 2009, the line — billed as Europe’s biggest infrastructure project — would have connected the capital with Birmingham and Manchester further north.
But in October, Sunak scrapped the Birmingham to Manchester section of the line, leaving businesses planning faster rail links furious.
“The sheer political and policy volatility [means] companies don’t know if they’re coming or going,” Wood said.
Starmer’s meeting with Biden on the sidelines of a North Atlantic Treaty Organization summit highlighted the “special relationship” between the allies.
In a speech in Washington last year, Mr. Reeves outlined an economic formula that echoed Treasury Secretary Janet L. Yellen’s doctrine of “modern supply-side economics.” The two share an enthusiasm for spurring growth by expanding the labor force and investing in climate-friendly infrastructure and energy sources.
Relative to the size of its economy, the US public debt is slightly larger than that of the UK. But the dollar’s status as the global reserve currency gives the US government more latitude to deal with its spending problems.
Labour has said it will abide by an informal fiscal rule developed by the previous UK government. This will require it within five years to start reducing debt as a percentage of gross domestic product, which is now set to reach 95% by 2026.
Labour has also ruled out raising personal income tax, social security tax or value added tax.
Budget realities have already caused Labour to scale back its ambitions. In February, the party scrapped its pledge to spend 28 billion pounds, or about $36 billion, each year on green energy programs. Instead, officials said annual spending would reach 4.7 billion pounds, or $6 billion.
“Reality has set in,” said Paul Dales, chief U.K. economist for Capital Economics. “The new government needs to focus on areas where it can really make a difference without costing a lot of money.”
One of those priorities will be overhauling the notoriously slow planning process that governs housing and infrastructure projects. Labour wants to speed up planning approvals to build 1.5 million homes over the next five years and overhaul the electricity grid.
The new government this week ended the Conservatives’ ban on onshore wind farms, which was introduced in 2015 and allowed a single objection to block projects.
Labour faces a daunting to-do list. But it may enjoy a short-term tailwind. Inflation in May was running at an annual rate of 2.8%, down from a peak of close to 10% in 2022. After a brief recession last year, growth is starting to pick up. The International Monetary Fund expects the economy to expand by 0.7% this year and accelerate to 1.5% in 2025.
With inflation falling, the Bank of England could soon cut its base interest rate from 5.25% for the first time in four years, which would give the economy a boost.
If the new government can improve the country’s health service and return some inactive workers to the workforce, the economy will gain even more momentum.
Labour’s huge parliamentary majority and the disarray in the opposition Conservative ranks mean Starmer can expect to remain in office for at least five full years of the parliamentary term, if not two.
This relative stability comes as other major economies are preoccupied with domestic politics. In France, the left-wing coalition that triumphed in parliamentary votes this month has endorsed free-spending policies that could destabilize financial markets. And the United States is in the midst of a divisive presidential race that could return an unpredictable former president to the White House.
“In an uncertain world,” Reeves said on Monday, “Britain is a place to do business.”
