Change but no change

The UK woke up Friday to a change in government, as Labour won the general election by achieving the biggest swing in recent parliamentary history. Conservatives faced significant losses across the country, and while Labour won a large majority, it was not as large as Tony Blair’s victory in 1997. Polls had been anticipating a Labour landslide for months, and Sir Keir Starmer has pledged to retain Rishi Sunak’s fiscal mandate, so market reaction was understandably muted.

The incoming Chancellor, Rachel Reeves, has clearly stated they intend to keep the taxation and spending plans much the same as the previous government. Despite “change” being a key word in Labour’s campaign, it is highly likely that one of the biggest swings in recent UK election history will result in minimal economic impacts.

With little change expected in borrowing and spending policies, at least for the next couple of years, along with no immediate plans to mend ties with Europe, equity and bond market reaction has been muted. The FTSE 100 has opened marginally higher with the more domestic-focused FTSE 250 rising 1.2% on Friday. Gilts and the pound remained little changed.

In coming weeks, we will understand the policy implications of the new Labour government on various sectors of the market. Labour have promised a pro-growth and pro-business mandate. Now we wait to see how this will be achieved and how they will fund these commitments.