What does the Labour landslide mean for the economy and markets?

The Labour party won a majority of 174 and we have a new party in government after 14 years. Here is a summary of the initial views of Schroders Group, a UK regulated global investment manager. If you have any questions or concerns, please contact us.

A secure majority government should reduce political instability for the nation, helping companies and investors to anticipate policy. This is seen as positive.

The biggest political change since Brexit saw Labour with a 1997-style majority, partly from the anti-Labour vote being fractured. Labour’s plans are to grow the economy and provide security and stability, the importance of which should not be overlooked from the perspective of investors. A recent study showed the level of instability since 2019 makes it difficult for companies and investors to work with government. Chancellor Rachel Reeves plans to exclude public investment from borrowing limits, a clear signal that Labour plans to borrow to invest.

Labour plans to ‘freeze’ personal taxes, but this may include freezing tax allowances as well. This ‘fiscal drag’ stealth taxation increase is exacerbated by inflation, but Labour will also be wary about dampening wage inflation by importing cheap labour, given the support for anti-immigration party Reform. There is, however, a general expectation that some other taxes will rise. The October Budget will be the first true test of Labour plans, and the Chancellor will be well aware of how the markets reacted to the disastrous budget in 2022

As the result was widely expected, stock markets, government bonds and sterling did not react after the result, if anything slightly improving. The Bank of England has been in election purdah, and their views on a summer rate cut are eagerly awaited. The next BoE decision is on August 1st.

Some fund managers have pointed out that the UK stock market performs better under Labour, particularly the FTSE 250 which is more domestically focused that the FTSE 100. Labour are keen (like the Conservatives were) to see more investment in British companies and may well provide incentives to encourage this.

(This article is a summary of a report by fund manager Schroders. The full piece can be read here)

Here at Markland Hill Wealth, we will be monitoring the new government’s policies and provide further general commentary as news unfolds. If you have any questions or concerns about your own individual situation, please get in touch.