In the wake of Labour’s victory there will still be winners and losers, so here’s a (very rough) tip sheet for a Labour honeymoon.
UK financial markets were calm at the open today as investors digested Labour’s landslide election result.
So what? The “ming vase” strategy has paid off. Rachel Reeves and her team have spent months meeting with city grandees to outline Treasury policy in the hope of delivering a safe and predictable environment for investment. This morning:
- The FTSE100 opened 0.3 per cent higher.
- Bond yields moved lower; and
- Sterling is trading slightly stronger against the dollar and steady with the euro.
The reaction strongly contrasts with September 2022 when Liz Truss delivered a bombshell mini-budget that left UK bond markets scarred and twitchy.
In the wake of Labour’s victory there will still be winners and losers, so here’s a (very rough) tip sheet for a Labour honeymoon. Recently-ousted Conservative MPs – or anyone else for that matter – shouldn’t take this as investment advice.
Long:
The City. “Valuations which have been languishing lower, partly due to the Brexit effect, could be positively impacted by Labour’s win, given recent pledges for closer trade ties with the EU. London-listed companies may also benefit from a tailwind of interest given the volatility of the French stock market,” says Susannah Streeter at Hargreaves Lansdown.
Construction. Labour’s pledge to kickstart the building of 1.5 million homes and fast-track brownfield development has seen the stock of housebuilders like Taylor Wimpey and Vistry rise steadily over the last month. Easing interest rates, plus a promise to extend the Freedom to Buy mortgage guarantee scheme will help with demand.
Turbines. Ed Miliband has pledged to lift planning restrictions on onshore wind farms “within weeks”. He also said the “first priority” of GB Energy’s initial £5 billion will be a floating offshore wind project.
The high street. Labour has promised to overhaul the business rates system to support brick and mortar chains. Depending on how plans materialise that could be good news for firms with large town centre footprints like J Sainsbury and Associated British Foods.
More taxes. Labour has ruled out raising core taxes on income. But the IFS estimates it could cost an extra £30 billion annually to avoid a return to austerity. Given the “trilemma” facing the Treasury – a choice between raising taxes, cutting spending, or changing debt rules – the new government could be tempted by any of the following:
- scrapping tax relief for pensioners;
- unfreezing council tax bands; and
- raising capital gains tax at some point during the parliamentary term.
Short:
Internal combustion engines. Labour’s manifesto pledged to reinstate the 2030 target for phasing-out sales of new cars with ICEs. It’s a stick without a carrot. Last month, Stellantis said it would shut its UK car plants without more incentives to boost demand for EVs.
Water companies. Ofwat, the water regulator, is about to get more power to increase fines and strip executives of bonuses. That spells trouble for companies already weighing up the future cost of leaky infrastructure.
The North Sea. Hargreaves Lansdown says oil majors operating in the UK will face “limited impact” due to their diversification, but smaller firms and explorers like Harbour Energy have already taken a hit from plans to end new licensing in the North Sea.
Fiscal rules. Labour has pledged to have government debt falling as a share of GDP within five years. But such “rules” have become more rhetorical than practical. It’s expected at some point Reeves will waive them, blaming the parlous state of public finances. A review by the OBR and others would then be commissioned, and would likely explore the idea of tying increased borrowing to productivity gains.
Power players. Labour’s reset with business offers new opportunities for the private sector to influence policy, especially through newly-formed business councils (e.g. on infrastructure) as well as five suggested “mission boards” that would aid Whitehall’s cross-department work. Key players to watch:
- Olly Robbins. Widely seen as frontrunner to succeed the current Cabinet Secretary Simon Case. Other contenders include Melanie Dawes, CEO of Ofcom; Tamara Finklestein, Permanent Secretary at Defra; and James Bowler, Perm Sec to the Treasury.
- Katie Martin. Rachel Reeves’ chief of staff was instrumental in the chancellor’s wooing of the City. Her primary task now will be economic troubleshooting.
- Jonathan Reynolds. The prospective business secretary is about to have a very full plate, not least with a global investment summit expected to take place within the first 100 days. He’s been advised by Fionnuala ‘Finn’ McGoldrick for the past two years.
No stock is invulnerable. But Labour’s careful planning has sent a strong market signal that favours businesses that hitched their wagon to Reeves’s. As Europe’s markets suffer political squalls, the UK stands to benefit too. Labour needs to make the most of its majority.
