Labour landslide: Financial services experts respond

Matt Evans, Portfolio Manager, UK Sustainable Equities at Ninety One

The UK has suffered from uncertainty and political instability since Brexit. That may begin to improve. UK stocks offer compelling value on a global comparison. As profits begin to rebound, UK politics stabilises and interest rates begin to fall, we see a more favourable outlook for UK companies.

A new political landscape

As the polls predicted, we are waking up to a Labour government to be led by Sir Keir Starmer. With more than 400 seats in parliament, Labour will have a significant majority, likely to be around 170 seats. The Conservatives have suffered significant losses. The Lib Dems have achieved their best result since 1923. At the eighth time of asking, Nigel Farage the Reform UK leader has won a parliamentary seat.

While Labour has a huge parliamentary majority, it is perhaps not the political landside it appears. Indications are that they have taken just 36% of the vote, with a large number of seats won on a slim margin. Therefore, as they progress through their term, the UK’s economic challenges of planning reform, EU alignment, tax reform and public sector productivity will not easily be solved and will depend on potentially controversial trade-offs. Despite this, the ‘Securonomics’ Labour is going for should support stability in the shorter term. Monitoring policy implementation and improving growth will be key to retaining confidence.

What does it mean for the country as a whole?

• Fiscal policy is set to show little change in the early days as Labour has consistently communicated there will be no major tax rises, no significant spending cuts and no slippage from current fiscal rules, all while boosting growth. This will be tough to achieve.
• The first budget could happen in mid-September, but it will more likely come after the Labour Party conference, sometime in October or November. Expectations are for a cautious start. The new government hopes growth will provide the flexibility to spend more over time.

Stock market considerations – Sector impacts

Banking

• The impact on banks appears neutral, with Starmer ruling out further taxes on the banks at present. The risk of an increase in capital gains tax, as well as increased regulation around carried interest, may impact net flows for UK wealth managers. Scrutiny on the insurance sector, such as on car insurance pricing, is likely to remain.

Utilities

• Utilities appear well placed as Labour continues to emphasise the importance of electricity networks and so the required investments should be well supported. The water sector remains in focus and needs significant improvement.

Net zero

• Labour continues to put net zero as a central policy, given its importance to energy security and reducing energy bills. This should be positive for renewables and electricity networks. Labour has identified the oil sector for further taxation. It has previously announced its Green Prosperity Plan, via the creation of a National Wealth Fund and a public body (Great British Energy), funded in part via a windfall tax on energy firms and borrowing. Other policies announced include working with the private sector to double onshore wind, triple solar power and quadruple offshore wind by 2030. It also plans to invest in carbon capture and storage, hydrogen and marine energy, and long-term energy storage.

Residential construction

• Housebuilding has been a central part of Labour’s focus, and a more efficient planning system to drive more housebuilding with an emphasis on affordable homes is a priority. The question is how long will it take to implement change.  Improving planning is a key focus for all areas of building and infrastructure and should be a positive for these sectors.

Transportation

• Labour has spoken about its plans to nationalise the rail industry under GBR. The rail network requires investment but is a key pillar of levelling up and moving towards lower-carbon transport.

UK capital markets

The commitment to the fiscal rules will see Labour focus on supply side reform to boost growth and productivity. In this scenario, the election result could be taken as a positive for UK capital markets. Stability and confidence are key. The challenge will be to demonstrate Labour can boost growth while managing a tight fiscal position. If it shows progress on these fronts, then confidence from business and overseas investors will build, leading to a positive outlook for the UK economy and market.

Relative to some other regions, UK equities offer compelling value. A more stable political backdrop, when combined with a rebound in profits and falling interest rates, adds up to a more favourable outlook for UK companies.

Property experts react to Labour landslide

 
Paresh Raja, CEO of Market Financial Solutions, said: “The accepted logic is that elections bring uncertainty and are therefore bad news for the property market. But there have been some important differences this time around: Rishi Sunak called for the vote to take place a lot earlier than expected, and the result (a Labour victory) has seemed highly likely from the off. As a result, there has been less uncertainty than there could have been, and now the ballots have closed, we should see a prompt return to more stable, ‘business as usual’ conditions.

“There are enough signs to suggest the market is ready for a post-election uptick in activity. The number of homes coming onto the market in the first half of 2024 is 22.9% higher than last year, while economists are still predicting that the Bank of England will cut the base rate twice before the end of the year, with the first potentially coming on 1st August.

“But, despite these reasons for optimism, there is clearly no room for complacency. Political and economic turbulence remains, so lenders have to focus on supporting brokers and borrowers as best they can. Optionality and flexibility will be key in the second half of this year, and lenders have to commit to providing borrowers with the financial products they need to both benefit from any opportunities that a potentially more stable climate could provide.”
 
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Jatin Ondhia, CEO of Shojin, said: “Labour’s ascendancy to Downing Street marks an important moment for the property sector. Several ambitious pledges regarding housebuilding and investment were made on the campaign trail, but now’s the time for Starmer and his party to back up their words with actions. Ensuring the UK continues to remain a global hub for investment needs to be a key priority, and the real estate sector will remain a crucial market for attracting that inbound investment

“Labour has work to do: interest rates remain high, the cost-of-living crisis has left a toll on people’s spending power, and economic growth needs to turbo-charging. However, following a rather tumultuous end to the Conservatives’ 14 years in power, the UK now has a chance to reposition itself, building strong international partnerships and attracting global investments. Labour’s plans to reform the planning system and pave the way for affordable house building present significant opportunities for greater investment into property development, but the effective implementation of their promised reforms will be key.
 

PMI reacts to Labour election victory

 
Tim Middleton, Director of Policy and External Affairs, the PMI said: “The PMI would like to offer its congratulations to Sir Keir Starmer on his victory last night. There are many reforms required to the UK pensions system. Some, such as the new Defined Benefit Funding Code and changes to auto-enrolment, remain from the agenda of the previous Government. Others stem from the Labour Party manifesto: the new Government has committed itself to a review of the UK pension system, and we would greatly appreciate clarity as to what this review will address. In particular, we look forward to the appointment of a new Pensions Minister, who we greatly look forward to meeting in order to discuss the next chapter for pensions provision in the UK.”
 

Labour win general election – Pension expert reaction

 
Lily Megson, Policy Director at My Pension Expert said, “A Labour victory was as close to inevitable as you could get. Yet, Starmer and his party must not be complacent. Britons have experienced a great deal of financial hardship throughout the final years of Conservative governance. Financial planning – particularly retirement planning – has been an uphill battle for many Britons.

“As such, it is vital that the incoming government work rapidly to ensure economic stability. Further, pension policy must be airtight.

“Leading the party’s plans for pension policy is a comprehensive pensions review – a much-needed initiative that should be a top priority. With millions not saving adequately for retirement, the review must result in reforms that improve access to financial education, boost pension engagement, and simplify savers’ experience of the sector. Indeed, closing the engagement gap must be top of the agenda for the new government.

“One way the new government can simplify the pension system is by supporting the timely rollout of the Pensions Dashboards, which have faced significant delays under Westminster’s predecessors. Additionally, the government must enforce greater scrutiny and accountability for providers imposing excessive transfer delays.

“Above all, what we need is for the new government to actually deliver on its promises to transform pensions. Appointing a dedicated pensions minister with a clear action plan will be a crucial first step toward providing Britons with the knowledge and tools they need to achieve financial security in retirement. After a long period of instability and disillusionment, now is the time for definitive action. Your move, Labour.”