Labor won a landslide victory overnight on Thursday and held 412 seats in the UK Parliament by midday on Friday.
Eleven members of the outgoing Conservative government lost their seats in the run-off for Prime Minister Rishi Sunak.
Markets were relatively calm afterwards, expecting a Labor victory. We’ve rounded up reactions and expectations from analysts and experts for how the coming weeks and months will unfold.
markets
The pound and the FTSE 100 (^FTSE) were quiet in London on Friday as polls produced no big surprises.
“There’s always a sense of jitters before markets open the day after a general election, but we only see extreme volatility when investors are surprised,” said Dan Coatsworth, investment analyst at AJ Bell.
Read more: The pound rises after Labor’s landslide victory in the UK general election
“This time there was nothing to turn heads, as the result was widely expected. Instead, investors seemed to welcome the news with open arms.”
Housebuilders were among the winners thanks to a manifesto that pledged to invest in creating new homes.
Barratt Developments ( BDEV.L ), Taylor Wimpey ( TW.L ) and Persimmon ( PSN.L ) were among the top gainers on the FTSE 100. All three shares rose more than 3% in early trade.
“The relaxed mood in financial markets reflects the fact that a landslide victory for Labor was long predicted by polls and therefore already baked into market prices,” said Victoria Scholar, head of investments at Interactive Investor.
“During his election campaign, Starmer tried to appeal to markets by positioning Labor as a pro-business party and refrained from announcing plans for big tax rises.”
The muted response from both the indices and the pound comes in contrast to Liz Truss’ disastrous 2022 mini-budget, which saw the pound collapse and investors rush to sell London shares.
With relative stability from the Labor side, the future could look bright for the mid-cap markets.
“A Labor government could pave the way for an outperformance in mid-caps focused on the domestic market if Keir Starmer’s party works to deliver fiscal stability and help lift confidence in the UK economy,” Scholar said.
Read more: What the new Labor government means for your money
“Theoretically, we could see a snowball effect where the more the UK market grows in response to the election, the more people will be drawn in. There is no guarantee that this will happen, but such a response would certainly be long overdue given how UK stocks unloved since the Brexit vote in 2016,” Coatsworth added.
All eyes on the king’s speech
The next steps for Starmer and his team will be releasing their stand in the royal speech on July 17th.
“Here, markets will get a real insight into Labour’s key policy priorities for its first year in government, including potentially what could be more prominent in its Autumn Statement,” analysts at Deutsche Bank Research said.
The four things that matter most will be investment (through the National Wealth Fund), defence, reform planning and trade with Europe, the analysts added, as they will make a significant contribution to GDP growth if properly implemented.
Interest rates
With interest rates in the hands of the Bank of England (BoE), incoming Chancellor Rachel Reeves will focus on policy to help keep inflation under control.
A quarter-point rate cut by the BoE in August is currently expected as the Monetary Policy Committee meeting was postponed due to the election in July.
““Recently, there have been tentative positive signs in UK economic data, real wages have finally started to improve and inflation has eased significantly, and there are early signs of a recovery in earnings,” said Michael Born, investment research analyst at Morningstar.
“The UK is not without challenges, but if we see continued strong economic performance under this new, and importantly, stable government, and a rate cut by the Bank of England, it certainly has to be said that the valuations and yield levels available to UK investors should make the country an attractive prospect for asset allocators.”
FX
The near future should be free for the pound, which has hardly reacted at all to news of a democratic transition.
“With the result in line with expectations, we expect the pound to remain broadly unchanged after today’s results,” Deutsche Bank said.
“As we noted earlier this week, from a EUR/GBP perspective, attention will quickly turn to (a) the French election at the weekend (although the risk premium for that event has also fallen significantly) and (b) the next set of UK elections. data that will determine whether the BoE can cut rates in August.”
Watch: World leaders congratulate ‘friend’ Starmer on election win
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