Implications of Labour's landslide election win on the financial sector
Labour's Economic Agenda and Its Impact on the UK Market
In the wake of Labour's election victory in 2024, the UK economy is showing signs of interesting developments. The party's commitment to building new homes and investing in the green economy could potentially benefit building materials firms and renewable energy infrastructure companies.
Keir Starmer, the new Prime Minister, has made economic stability his primary objective. He and his potential allies in the government, such as Rachel Reeves, have expressed support for UK businesses and a pro-growth, pro-business approach. To this end, Labour has pledged to cap corporation tax at its current level of 25% for the next parliament.
However, Labour's plans for public spending may face challenges. Paul Dales, chief UK economist at Capital Economics, suggests that the party may need to raise taxes by more than outlined in its manifesto to address these issues. This could potentially impact businesses, although the exact implications remain to be seen.
Inflation is now under control, creating favourable conditions for a Bank of England rate cut. The prospect of interest rate cuts later this year is expected to have a positive impact on equity markets. The Bank of England's next meeting is scheduled for 1 August, and a rate cut is expected either at this meeting or the following one in September.
Since the election, the FTSE 100 has been relatively flat with minor fluctuations. However, the FTSE 250 has shown signs of recovery and stronger earnings growth momentum. UK stocks remain cheap compared to global peers, with midcaps improving after heavy discounts in 2024. According to UBS, the FTSE 250 is expected to outperform the FTSE 100 in 2025.
John Stepek, former executive editor of our website, stated that economic data is more influential in moving markets than political decisions. As such, the economic policies of the new Labour government will play a significant role in shaping the UK's economic future.
In conclusion, while the exact impact of Labour's economic policies on businesses and the market remains uncertain, the party's commitment to stability, investment in green infrastructure, and pro-business approach could potentially bring about positive changes. The coming months will provide more clarity as the new government implements its plans and the market responds.
