Britain’s Labor Party has been re-elected, albeit by a narrow margin. While still a healthy 66 seats, the party’s majority in the House of Commons has been greatly diminished. This election has several important implications for Britain’s economy. First, the defeat of the conservative party mitigates the likelihood that there will be tax cuts and/or decreases in government spending over the next few years. More importantly, Britain may now become more integrated in the European Union. Tony Blair is notorious for his support of the EU. Accordingly, he will likely campaign for Britain to ratify the EU Constitution if such a referendum is posed to its people. However, this is conditional on France and the Netherlands first approving the Constitution, which is by no means guaranteed. If Britain were to ratify the EU Constitution, it could conceivably abandon the pound in favor of the Euro. However, Labor’s narrow majority over conservatives will likely preclude this from happening. Morgan Stanley reports:

All in all, the reduced Labour majority perhaps makes it more likely that continuity, rather than radical reform, will characterise economic policy over the next four years.

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