Must read: markets respond to election result

RESULT 

Keir Starmer is set to become Britain’s new prime minister following Labour's highly convincing election victory overnight. 

The relaxed mood across financial markets reflects the fact that Labour’s landslide win had long been predicted by the polls and therefore was already baked into market prices. Starmer tried to appeal to the markets during his election campaign by positioning Labour as a pro-business party and refraining from announcing plans for major tax increases.

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In stark contrast to Liz Truss’ ill-fated mini Budget in 2022, which sent bonds and the pound tumbling, today’s lack of market volatility and subdued price action suggests investors and traders see the latest election outcome as a democratic vote in favour of a new political era representing stability and calm.

A Labour government could pave the way for an outperformance of more domestically focused mid-cap stocks if Keir Starmer’s party works to ensure fiscal stability and helps to lift confidence in the UK economy. 

Starmer will inherit a significantly improved economy with inflation now back down to the 2% target, retreating from 2022’s 41-year highs and with UK growth back on track again after last year’s short shallow recession. There could also be a further boost to economic confidence next month for Labour if the Bank of England finally decides to start cutting interest rates, potentially paving the way for a notable reduction in mortgage costs over the next year.

UK EQUITIES 

UK equities are extending gains today, with the FTSE 100, FTSE 250 and FTSE 350 in the green, digesting Labour’s landslide win overnight after the blue-chip index closed almost 1% higher yesterday on the day that UK voters cast their ballots. 

Housebuilder stocks are outperforming with Persimmon (LSE:PSN), Vistry Group (LSE:VTY), Taylor Wimpey (LSE:TW.), and Barratt Developments (LSE:BDEV) gaining more than 1% each, hovering towards the top of the FTSE 100. The sector is enjoying support from Labour’s ambitious housebuilding plans – it wants to build 1.5 million new homes over the next parliament. 

Retailers are also catching a bid with Frasers Group (LSE:FRAS) and B&M European Value Retail SA (LSE:BME) staging gains on the FTSE 100, fuelled by hopes that Labour will bring about a tailwind for UK consumer spending and confidence.

STERLING

The election outcome alleviates some of the UK’s recent political uncertainty, providing a small uptick for the British currency against the US dollar – it is now the strongest performing currency against the greenback this year. 

Meanwhile, sterling is also in the green against the euro, reflecting not just the sense of hope around the incoming Labour government but also the uncertainty around France’s political future which has been weighing on the eurozone’s common currency.