Labor leader Tony Blair arrives in Downing Street following his election victory on May 2, 1997, with flag-waving crowds in the background.
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LONDON — With less than six weeks to go until the British election, polls suggest center-left Labor could return to power after 14 years — an outcome analysts say stocks will react positively to.
A Labor victory would oust Chancellor Rishi Sunak’s right-wing Conservatives, who last week announced a July 4 vote. Even if Labor does not secure a parliamentary majority, it is likely to seek a coalition partner with a smaller party to form a government, unless the Conservatives perform surprisingly well.
Citigroup said in a report on Wednesday analyzing stock market movements going back to 1979 that British stocks have historically been “relatively flat or even down” in the six months after elections (the study excludes losses from the dot-com bubble burst and the financial crisis). Unstable financial conditions”).
Six months after Labor’s victory, the MSCI UK Large and Midcap index was up about 6%, according to Citi, while it was down about 5% after the Conservative victory.
The FTSE 250, which is more focused on domestic markets, tends to outperform FTSE 100 The report said Labor’s performance after the election was stronger following its win.
The bank also found that defensive and financial stocks tend to perform better after elections, with energy stocks performing well.
Shadow Chancellor Rachel Reeves, Labor leader Sir Keir Starmer and Deputy Leader Angela Rayner attend the event in Purver, UK on May 16, 2024 Labour’s election pledge presentation at the Little Backstage Centre.
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According to Capital Economics, UK stocks have been volatile five times during past Labor governments.
However, John Higgins, chief markets economist at the consultancy, said it would be “disingenuous” to blame these solely on the party. They occurred during the Great Depression of the 1930s, the postwar 1940s, the aftermath of the oil market shock in the early 1970s, the dot-com crash of 2000 and the financial crisis, he said in a report Thursday.
Higgins also observed that the relative performance of UK stocks has been “generally lackluster since the Conservatives came to power in 2010”.
Higgins added: “Whatever you think of history, we doubt that Labor’s return to power this time around will be a big deal for investors.”
financial struggle
The Labor leadership, particularly Rachel Reeves, the shadow finance minister, and Keir Starmer, the party leader, have repeatedly stressed last year that they will focus on fiscal discipline and seek to reduce the national debt as a share of the country. Proportion of gross product value.
Reeves, a former banker, also sought to attract business leaders and financial institutions, meeting with senior executives and financial figures. Attend events such as the World Economic Forum in Davos.
CS Venkatakrishnan, chief executive of Barclays, told CNBC in January that political risks in the UK were “much lower than in the past” and the differences in economic policy between the parties were “fairly small”.
Labor figures have made clear that in the current election campaign they will accuse the Conservatives of piling up high public debt during the so-called “mini-budget crisis” under Sunak’s short-lived predecessor Liz Truss and weakening the party. the UK’s economic credibility.
In comments last week, Sunak said inflation had “returned to normal”, the economy was growing and wages were growing “sustainably”.
Pound outlook
John Higgins of Capital Economics said there had been five stock market crashes under past Labor governments. GBP 100 years later, but broader factors are again at play.
Three of these can be attributed to the “unsustainability of the fixed exchange rate system” between the 1930s and 1970s, one due to the financial crisis and the fifth 1976 debt crisisHe said.
Analysts predict that the lack of fiscal disagreements means the outlook for sterling and British government bonds, known as gilts, will remain more relevant to the outlook for interest rates.
“(Foreign exchange) markets react most strongly when there is a high degree of election uncertainty. This does not apply to the current situation and if history is any guide, we should expect sterling to rise slightly over the coming weeks with little to no reaction to the election result itself,” Joe Tuckey, head of FX analysis at Argentex Group, said in a note on Friday. .
“This was the playbook before New Labour’s victory in 1997, when the pound rose by just 2.5% in the weeks before polling day. In many ways, the pound will refocus on inflation and the Bank of England’s interest rate policy, which may be more telling than the election result. Determine price trends.
—CNBC’s Ganesh Rao contributed to this article
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