Labour Victory Could Boost Financial Markets.


JP Morgan strategists have indicated that a Labour election victory would be a “net positive” for financial markets, highlighting the attractiveness of Keir Starmer’s “centrist platform” to the City of London.


In a note to clients, analysts led by Mislav Matejka, JP Morgan’s head of global equity strategy, suggested that a Labour majority would be advantageous for banks, builders, and supermarkets.


They noted that Labour’s policies are “modestly pro-growth” and are expected to adopt a “cautious fiscal approach.”


Similarly, analysts at the Japanese investment bank MUFG stated that a decisive Labour victory would be “most positive for the pound.” They believe it would reduce political instability, raise expectations of higher government spending, and potentially foster a more constructive post-Brexit relationship between the UK and the EU.


According to current polls, Starmer is the favourite to become the next UK Prime Minister.


Labour’s transformation since the 2019 general election has been significant, involving the removal of former leader Jeremy Corbyn and a shift away from previous spending commitments. This change has been accompanied by Labour’s efforts to appeal to big business, dubbed the “smoked salmon offensive.”


JP Morgan’s strategists emphasised, “We believe the market impact will be net positive,” due to Labour’s centrist stance and the anticipated end of policy paralysis.


They added that Labour’s agenda, while pro-growth, would likely focus on supply-side reforms to boost economic growth within a tight fiscal framework.


A Bloomberg News poll published on Monday showed that more than half of the 268 respondents, including readers and financial market terminal users, viewed a Labour victory as the best outcome for the pound.


MUFG’s Derek Halpenny and Lee Hardman pointed out that Labour’s spending plans are “unlikely to fuel investor concerns.” They drew a parallel with the Conservative party under Liz Truss, whose tenure saw the pound plummet to its lowest level against the US dollar due to market fears over unfunded tax cuts. Currently, the pound is stronger, valued at $1.27 compared to $1.0327 during Truss’s time.


Labour has pledged to adhere to fiscal rules, such as not borrowing for day-to-day government spending and reducing net public debt relative to GDP over a five-year period. Halpenny and Hardman remarked that Labour’s commitments do not represent a significant shift from the current fiscal framework.


Matthew Ryan from Ebury noted that the prospect of a Labour government is “actually buoying sterling” compared to the euro, which is experiencing uncertainty due to far-right influence in European elections and Emmanuel Macron’s snap election decision in France.


JP Morgan prefers the FTSE 250 index, which includes medium-sized companies focused on the UK market, over the more internationally focused FTSE 100. The bank’s positive outlook on Starmer’s Labour contrasts sharply with its view on Corbyn’s policies, which included nationalisation of several industries.


However, JP Morgan acknowledged that not all big businesses would welcome a Labour government, citing plans to nationalise the train network and increase taxes on energy companies. While water companies might face tighter regulations, other utilities could benefit from investments in net zero energy infrastructure.


The pound reached a 22-month high against the euro on Monday, spurred by Macron’s unexpected call for parliamentary elections in France, affecting stocks and bond prices in Paris and Berlin.

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