Keir Starmer (pictured) will become prime minister later today (5 July) after the Labour Party won a resounding majority at the UK general election.
Reacting to the result, which saw the party gather over 400 seats, industry commentators say the outcome provides stability for investors.
Ben Ritchie, head of developed market equities at Abrdn, said the scale of Labour’s victory provides the “clarity and stability” that equity markets need in an increasingly volatile world.
“Labour’s pro-growth agenda is key to delivering the tax revenues needed to fund public services, with private capital playing a vital role in supporting investment,” he says.
“If the new government get this right, businesses with significant exposure to the UK economy should be the likely winners – a shot in the arm in particular for companies in the FTSE 250 and FTSE Small Cap. With just a little more patience, investors could finally be rewarded.”
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Short honeymoon period
Sarah Ruggins, head of investment specialists at St James’s Place, said that investors were already reporting increased confidence in markets and their investments in the build up to the election, and today’s result will likely consolidate this.
“Greater policy certainty going forward should lead to greater confidence in the growth outlook for the UK economy. The new Labour government may be a boon for broader trade relations and since planned policy changes are likely to take time to implement, it’s unlikely we’ll see any immediate negative effects from this election result.
“While today’s Labour victory may result in a probable short-term uplift for UK shares, it could also have a positive impact on the UK market over the long term, making it more attractive for investments compared to more expensive, developed, potentially overvalued equity markets, such as the US. Over the medium-term, valuations rather than politics will be the primary driver of returns, and, from that perspective, UK equities look attractive.”
Ruggins added that sectors such as infrastructure and defence are expected to receive a boost over the long term due to manifesto pledges over green infrastructure initiatives and defence spending.
“However, Labour is also facing a much tougher macroeconomic backdrop than when they were last in power, with lower growth, higher inflation, as well as a more challenging economic backdrop with a wider deficit, and significantly higher level of debt. Given this fiscal situation, the Government may not be able to borrow or grow its way out of trouble. With most spending cuts likely to be unpalatable to this Government, we are expecting further tax rises of some sort later in the year.”
See also: Rathbones: UK equities viewed as ‘extremely cheap’ by industry
Yazmin Boden, partner of GSB Wealth, agreed that infrastructure is expected to receive a boost based on Labour’s pledged policies, while she also sees banking, construction, and retail as potential beneficiaries.
She added: “Labour’s pro-growth funding strategy is likely to provide a favourable environment for medium-sized companies listed on the FTSE 250 index. The creation of a national wealth fund and support for key sectors like financial services and automotive should stimulate business investment.
“The anticipated stability of a Labour government – following a merry-go-round period of Conservative prime ministerial changes in such quick succession – is likely to be warmly welcomed by the Markets, its centrist platform having a net positive effect on financial markets, and we could see a stock market uptick going into Q3.”
Despite the scale of the result, Lindsay James, investment strategist at Quilter Investors, warns Labour’s honeymoon period could be swift.
“While the City is comfortable with a Labour government, it too will want to see substantial and concrete plans to reinvigorate the London market,” she said.
“Labour governments have not been considered natural allies in the past, but the demise of the London market will require it do give it some sort of stimulus, especially if it wants growth to return to the economy. Getting more businesses choosing to list in London would be a positive start, but a lot needs to be done to also prevent companies currently listed here moving elsewhere or going private.
“This is a fascinating election result and Labour will quickly discover the challenges that face them and the potential this has to hold back its agenda. Given how the votes have played out, it is unlikely the population will give them a long leash and as such clamour for change and improvements will be swift.”
