The United Kingdom took to the polls on Thursday, 4 July 2024, as they voted in the Labour Party and ended the 14-year reign of the Conservative Party at the helm of the country’s affairs. The elections were significant as the two leading parties had vastly different views on the UK’s domestic issues, from economic and immigration policies to foreign affairs. Here’s how two of the UK’s markets, the financial and real estate sectors, are reacting to the election of Keir Starmer.
UK Financial Markets
The UK financial markets were largely relaxed following Starmer’s landslide victory, which saw the Labour Party sweep the polls. Analysts believe the long-predicted victory gave markets enough time to adjust, hence the relaxed situation. The British pound held in the forex trading market on election day, ticking slightly against the US dollar and the euro the next day. The pound remains the strongest-performing currency against the USD in 2024.
The PM’s silence on tax policies may have also contributed to the stability enjoyed across financial markets, as investors took it as a positive sign that Liz Truss’s disastrous announcement in 2022 would not be repeated.
The stock markets also performed admirably, with mid-cap stocks rising. The FTSE 250 hit a two-year high, rising 1.8%, while the FTSE 100 index hit 0.2% in gains. Goldman Sachs has also revised its forecast for the 2025 and 2026 GDP growth to 0.1 percentage points following the elections. Analysts at the company say that the Labour Party’s manifesto could drive demand for the GBP.
Real Estate Stocks Jump
The real estate market also reacted to Labour’s triumph at the polls, with several stocks gaining as much as 4% in one day.
The UK homebuilders index (.FTNMX402020) jumped 3.2%, while Persimmon, Taylor Wimpey, Vistry and Barratt (BDEV.L) gained nearly 4% on the FTSE 100 (.FTSE). Building materials suppliers also benefited, with Travis Perkins (TPK.L), Howden Joinery (HWDN.L), Forterra (FORT.L), and Ibstock (IBST.L), all climbing between 1.5% and 3.3%.
The UK real estate market is also enjoying a boost from Labour’s Rachel Reeves, the Chancellor’s promise of getting the country “building again” through a comprehensive building program to revitalise Britain’s housebuilding. Ms Reeves, in her first speech as Chancellor, highlighted her commitment to making the “hard choices” to fix the UK’s economy and 1.5 million homes.
Ms Reeves also presented her plan to investors and business leaders to attract much-needed investments to Britain and unlock billions of pounds for the real estate sector and green economy. Additional projects in the transportation and energy sectors will complement efforts to get the economy growing as they prioritise infrastructure that has been left “unresolved.”
Potential Issues in the Housing Sector
The Labour Party’s pledge to outlaw evictions under Section 21 created among landlords and investors, who are now considering selling off to stem losses.
The Renter’s Reform bill is currently in the House of Lords and is estimated to become law by 1st October 2024. While Ms Reeves previously expressed her preference for rent caps, her party may crack down on no-fault evictions, forcing landlords to keep law-breaking tenants and causing substantial potential losses.
The Renter’s Reform Bill may also significantly change how landlords offer services. Many may opt for a relatively safer holiday service than long-term and regular tenancy. Such a situation may dampen investors’ confidence in real estate stocks and trigger massive selloffs.
Predictions for UK Markets Under Labour
Analysts believe Labour’s promise of stability can improve the UK’s economy in diverse aspects. Victoria Scholar, head of investment at Interactive Investor, noted that if the party can “ensure fiscal stability,” more investors will have confidence in the UK economy, which could lead to the outstanding performance of domestically focused mid-cap stocks.
There are also strong possibilities of a tax hike in the future, despite Labour’s disposition to taxes. The Bank of England has also postponed its interest rate cut, leaving the 16-year high rate of 5.25% running. The apex bank noted that the election schedule did not factor in its decision, but the inflation rate target remained a key factor.
The Labour-led parliament will likely scale laws faster, reducing indecisions and providing clarity for investors on critical matters. This could positively impact financial markets in the coming months.
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