Election 2024: Sterling and FTSE 100 edge higher after thumping Labour victory
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Labour’s thumping majority sparked little reaction in the markets on Friday morning with analysts suggesting the election results were already priced in.
The results confirmed that Labour won a landslide majority while the Conservatives look set to slump to the worst performance in their history.
Sterling was rose marginally against the dollar to trade around $1.277 while it was little changed against the euro at €1.18.
The FTSE 100 climbed 0.34 per cent shortly after the market open to trade at 8,269.01 while the FTSE 250 rose 0.90 per cent. Gains were led by housebuilders on the back of hopes that Labour will be able to break through the planning logjam and ramp up the pace of construction.
Gilt yields, which reflect the cost of government borrowing, edged slightly lower too but remained largely unchanged.
“UK markets haven’t reacted much to the result, as the outcome of a Labour majority was widely expected beforehand,” Deutsche Bank’s Jim Reid wrote in a note to clients.
Lindsay James, investment strategist at Quilter Investors agreed. “Businesses and investors have foreseen this result for some time and have been comfortable with the messages that have emanated from Labour.”
Michael Brown, senior research strategist at Pepperstone said market attention was already turning to how the new government will act over the coming weeks.
“For market participants…focus will rapidly turn to how the new Labour government act during the first 100 days in office,” he said.
Labour has pitched itself as the pro-business party and the party’s large majority should provide a stable platform on which to deliver its manifesto commitments.
It has promised to put economic growth at the centre of its policy agenda, with reforms to the planning regime expected to be announced in the King’s Speech later this month.
Rob Wood, chief UK economist for Pantheon Macroeconomics, said that a stable policy course should “unlock more business investment and attract greater foreign investment.”
Despite the limited market reaction, a few economists suggested that economic growth might pick up a little faster than expected over the coming years.
Analysts at Goldman Sachs raised their growth forecasts by 0.1 percentage points for 2025 and 2026.
“We continue to expect that Labour’s fiscal policy agenda will provide a modest boost to demand growth in the near-term,” they wrote.
Analysts at Capital Economics also suggested that a Labour government might generate some “upsides” to GDP, inflation and interest rates forecasts.
“The general election has resulted in a significant political shift for the UK and investors appear to welcome the changing of the guard, judging by how the more domestically focused FTSE 250 got off to a very strong start,” said Dan Coatsworth, investment analyst at AJ Bell.
“There is always a sense of nervousness ahead of markets opening the day after a general election, but we only get extreme volatility when investors are caught by surprise. This time round, there was nothing to get heads spinning as the result was widely expected. Instead, investors appeared to welcome the news with open arms.
“Political uncertainty is over and this removes one of the key risks around UK equities, so it’s feasible that more domestic and foreign investors are now looking for opportunities on the market. This suggests today’s reaction might not be a one-day sensation.
“Theoretically, we could see a snowball effect whereby the more the UK market goes up in response to the election, the more people start to get drawn in. There is no guarantee that will happen, but such a response would certainly be long overdue given how UK equities have been unloved since the Brexit vote in 2016.
“The FTSE 250 had a stronger reaction to the 2024 general election result than the FTSE 100 because it has more companies which do business in the UK.
An initial 1.8 per cent gain in early trading for the FTSE 250 was the second highest rise for the first day of a new UK prime minister since the mid-cap index was created in 1994. While the market could still move in a different direction as the day progresses, and indeed the index had given up some of those big gains by 9am, the initial reaction is promising.