Panorama of Bishopsgate in the City of London. According to reports, the British economy will grow faster in early 2024 than initially estimated.
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Britain’s Labor Party swept to victory in Thursday’s election, taking over from the Conservative Party after 14 years at a time when economic uncertainty remains widespread in the country.
The UK’s FTSE 100 is expected to rise 25 points to 8,262 points when it opens on Friday morning, with the pound gaining only modestly. The currency has risen The dollar was down 0.06% and 0.03% against the euro at 6:28 a.m. London time, with little movement late Thursday night.
Interest rates in the UK remain high as the Bank of England has been battling high inflation in the wake of the Covid-19 economic slowdown.
The two main political parties issued different economic and financial manifestos during the election campaign, which may have different impacts on the investment environment.
For example, Labor’s promise to raise taxes on the salaries of private equity fund managers has raised some eyebrows and raised wider questions about what that might mean.
Speaking to CNBC, some experts weighed in on the potential impact a change of government could have on UK investment.
stock market
The arrival of a new Labor government has yet to have much of an impact on markets, but analysts expect UK assets to become more attractive from now on.
Jefferies analysts said in a note on Friday that a Labor victory in the UK general election would help make the UK appear “relatively stable” despite concerns raised by a strong performance by the right-wing Reform Party.
This, combined with regulatory reforms, “could increase the attractiveness of UK assets,” analysts at Jefferies wrote in a research note.
Meanwhile, Nutmeg chief investment officer James McManus told CNBC that the vast majority of the time, “the market doesn’t really care” about the election. “Historical data tells us that elections and their results rarely move markets when the expected results materialize.”
Susannah Streeter, head of currencies and markets at Hargreaves Lansdown, echoed McManus’ comments broadly in a note published this week, but added that it could have some impact on the economy.
“It is widely predicted that a Labor victory in the UK could usher in an era of greater stability in the UK… which should help boost investor sentiment towards the UK,” she said.
The UK political landscape has been characterized by frequent changes in leadership in recent years, which has sometimes led to market turmoil – particularly during the reigns of former Prime Ministers Liz Truss’s brief tenure as Prime Minister.
Street noted that some industries — and specific stocks — could also be affected. Pressure on utilities is likely to increase as Labor plans to increase fines on water companies already under pressure from high costs. At the same time, the party’s pledge to increase the national defense budget could see UK airspace stocks benefit from additional spending on new technology and equipment.
Real estate market and housing
Richard Donnell, executive director of research at Zoopla, told CNBC plans to build more homes could impact the real estate and housing sectors.
“Investors will welcome this focus on residential construction,” he said. “What investors want is a greater focus on housing and delivering the homes the country needs, and leveraging as much private investment as possible to create attractive investments for more capital and support the ambitions of the new government.”
Hargreaves Lansdown noted that some housebuilding stocks were also likely to get a boost as Labor plans to build new affordable homes.
However, Nutmeg’s McManus said broader economic developments would also be a factor. As interest rates fall, so will mortgage rates, which could lead to more people buying or selling homes, he said, adding that it could also have a knock-on effect on other industries such as furniture and DIY stores.
RBC’s head of European capital goods research told CNBC’s Silvia Amaro on Friday that the homebuilding industry will be the main beneficiary of Labor’s landslide victory.
“For housebuilders it’s paramount and for the broader building supply industry, which is bricks, it’s very good,” Mark Fielding said, pointing to two drivers. “There are two important factors: firstly, restoring the statutory target of housing construction to deliver 1.5 million new homes over the next five years, which would be a huge positive; and secondly, the hope that planning reforms will be implemented to achieve this target.”
Fielding said this would in turn allow for a faster planning process and the potential for additional central government intervention to push for more Dáil approvals. capacity for economic growth.
“U.K. bank shares are ultimately one of the biggest indicators of growth in the U.K. economy,” he said.
GBP
Strategists and Economists Predict GBP Not strongly affected by the election.
Deutsche Bank strategist Shreyas Gopal and senior economist Sanjay Raja said in a report released on Wednesday that if the results are in line with expectations, people’s attention will soon shift away from the British election.
“For EUR/GBP, this means turning attention to the cross-Channel election (France) and then UK data due in mid-July, which will determine whether the Bank of England is able to cut interest rates for the first time in 2019. In early August, “they said.
Francesco Pesole, FX strategist at ING, told CNBC that there were no “huge risks” to the pound under a Labor government in the long term either. He explained that a potential renegotiation of the Brexit deal would be more conducive to economic growth under Labour, and that the risk of excessive government spending would be low.
But Pessole said the pound was likely to remain stable during difficult times.
He said: “We expect sterling to depreciate against the euro over the next 24 months, mainly because we think the Bank of England will cut interest rates more deeply than the European Central Bank.” Higher taxes in the UK could also weaken its currency, Pessol said, but These are likely to weaken regardless of the election outcome.
Bond Market
In a second report earlier this week, Hargreaves Lansdown’s Streeter said bond markets had so far not reacted to potential new policies from the Labor leadership.
During the campaign, Labour’s economics spokesperson Rachel Reeves said government borrowing rules could be changed to boost growth and investment. But Street said the bond market’s focus appears to be elsewhere.
“So far this does not appear to be disrupting debt markets, with bond investors appearing to be more sensitive to interest rate speculation than the incoming administration’s investment plans,” she said.
—CNBC’s Ryan Browne and Ruxandra Iordache contributed to this article.
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