New Labour Chancellor Keir Starmer is due to set out his position in a King's Speech on July 17. (Reuters/Reuters)
The Labour Party won a landslide victory on Thursday night, giving it 412 seats in the British Parliament as of midday on Friday.
Eleven members of the outgoing Conservative government lost their seats, and Chancellor Rishi Sunak suffered a crushing defeat.
Markets were relatively calm after the election as they expected a Labour victory. Here are some reactions and predictions from analysts and pundits on how the coming weeks and months might play out.
market
The pound and the FTSE 100 (^FTSE) were calm in London on Friday as the polls offered no major surprises.
“There is always tension ahead of the market opening the day after a general election, but extreme volatility only occurs when investors are caught off guard,” said Dan Coatsworth, investment analyst at AJ Bell.
Read more: Pound rises after Labour wins UK general election
“This time around, there was nothing to stir heads about as the outcome was widely expected. Instead, investors appear to have welcomed the news with open arms.”
Housebuilders were among the winners due to their manifesto commitment to invest in building new homes.
Barratt Developments (BDEV.L), Taylor Wimpey (TW.L) and Persimmon (PSN.L) were all top performers on the FTSE 100 index, with all three up more than 3 percent at the open.
“The calm across financial markets reflects the fact that a landslide Labour victory has been predicted in the polls for some time and has therefore already been priced into markets,” said Victoria Scholar, head of investment at Interactive Investor.
“During the election campaign, Starmer sought to appeal to markets by positioning Labour as a pro-business party and refraining from announcing plans for major tax increases.”
The muted reaction of both indexes and the pound is in contrast to the disastrous Liz Trussmini Budget for 2022, when the pound crashed and investors rushed to sell London shares.
With the Labour government remaining relatively stable, the future may be bright for the mid-cap market.
The story continues
“A Labour government could pave the way for stronger performance for domestically focused mid-cap stocks if Keir Starmer's party works to ensure fiscal stability and helps boost confidence in the UK economy,” Mr Sculler said.
Read more: What a new Labour government means for your money
“In theory, you could see a snowball effect where the more the UK market rises in response to the election, the more people are drawn in. There's no guarantee that will happen, but given how unpopular UK shares have been since the 2016 Brexit vote, such a reaction would certainly have been long overdue,” Coatsworth added.
Watch the King's Speech
The next step for Starmer and his team will be to set out their position in the King Speech on July 17.
“The market will now get a real sense of Labour's key policy priorities for year one in power, including what may be given more weight in the autumn statement,” analysts at Deutsche Bank Research said.
The four most important things for this are investment (via the Sovereign Wealth Fund), defense, planning reforms and trade with Europe, the analysts said, adding that if implemented properly, these would contribute significantly to GDP growth.
Interest level
Interest rates are controlled by the Bank of England (BoE) and the next Chancellor of the Exchequer, Rachel Reeves, is likely to focus on policies that will help keep inflation in check.
The Bank of England is currently expected to cut interest rates by 0.25 percentage points in August, after the Monetary Policy Committee meeting was postponed due to the July elections.
“There have been some tentatively positive signs in U.K. economic data recently, with real wages finally starting to improve, inflation falling significantly and earnings beginning to show signs of recovery,” said Michael Bourne, investment research analyst at Morningstar.
“The UK is not without its challenges, but with continued strong economic performance under this new and importantly stable government, and the Bank of England cutting interest rates, the argument can arguably be made that the valuations and yield levels available to UK investors should make the UK an attractive prospect for asset allocators.”
FX
The near future should be smooth sailing for the pound, which barely reacted to the news of democratisation.
Deutsche Bank said: “The result was in line with expectations and we expect the pound to remain broadly unchanged following tonight's results.”
“As we noted earlier this week, from an EUR/GBP perspective, attention will soon shift to (a) the French election over the weekend (although the risk premium for this election has also fallen significantly) and (b) upcoming UK data which will determine whether the Bank of England can cut rates in August.”
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