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And markets shrugged...

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5 July 2024 |
Labour’s landslide victory looks set to herald a reworking of the political landscape, but markets barely moved.

As widely predicted, the opposition Labour party has won the UK general election by a landslide, with leader Keir Starmer set to become prime minister and form a government on the back of a huge majority.

At time of writing, Labour had won 412 seats, while the ruling Conservatives had secured 121. The pro-European Liberal Democrats, the third largest party, won 71 seats. The UK parliament has 650 seats. The result marks the biggest change in the UK political landscape in a generation.

Even so, the impact on markets has been minimal. The FTSE 100 rose 0.23% while 10-year Gilt yields fell 3 basis points to 4.17%.1

Orla Garvey, Senior Portfolio Manager for Fixed Income at Federated Hermes Limited, highlights the lack of volatility in bond markets, noting that, pre-election, the UK already carried a significant amount of political risk premium following 2022’s disastrous ‘mini budget’.2 If anything, she says, the lack of volatility suggests the election result has been viewed positively by investors. “I expect we’ll get a slight sentiment bounce from here and this will likely continue to be supportive for sterling.”

Looking further forward, the government will have learned from the mistakes of its predecessor and will likely avoid dramatic policy moves any time soon, she says. “It pushes the risks associated with the UK election a little further down the line,” adds Garvey.

Overall, we expect political risk to reduce in the face of stability, which is a positive for UK equities

The view from the equities desk

For Louise Dudley, Portfolio Manager for Global Equities at Federated Hermes Limited, the question of policy change is slightly clearer. Here, she believes the Labour landslide allows for a definite  change of agenda with key UK sectors such as housing, energy, transport and financial services all well placed to benefit from a ‘green’ growth agenda as set out in the Labour party manifesto.

“Ambition, awareness and a clear roadmap are useful assurances for corporates and investors to get behind,” says Dudley. “Support for schemes to improve electric vehicle infrastructure and domestic battery manufacturing would make the UK a more attractive destination for green transport.”

Even more pressing is the question of monetary policy, says Dudley. “Like other markets around the world, this will be crucial to keeping current modest, fragile growth rates positive. Overall, we expect political risk to reduce in the face of stability, which is a positive for UK equities.”

Further forward, Dudley points to the potential for closer ties with the European Union as being another possible benefit of the change in government, especially  for smaller businesses which have struggled with the additional regulatory tape since Brexit. She notes, however, that this is likely a longer-term development and that the upcoming Autumn budget will the more immediate priority for setting expectations around UK companies into 2025. 

The private markets view

For Chris Taylor, Head of Real Estate, Federated Hermes, the first six months of 2024 have been all about macro and political uncertainty – something which the clear-cut election result may help to address.

“The new government will hopefully grasp the role the built environment can play as a conduit for not only enhanced productivity, but also for delivering tangible societal and environmental benefits to our economy as a whole,” he says. “The government will need to act to support the UK as an attractive investment destination on the global stage, including facilitating long-term investment to deliver high quality build-to-rent homes and unlocking capital to build more affordable housing.”

Elsewhere, says Taylor, the focus should be on city-centre placemaking schemes, facilitated by public-private partnerships, as well as investment in infrastructure to support high-growth sectors such as life sciences and technology.

“Securing long-term patient capital from global investors to fund these new projects is critically dependent upon their confidence in the UK and its political stability; the new government will need to take steps to repair damage to global investors’ confidence in the UK as a destination for long-term investment in real assets,” he adds.

To find out more about Federated Hermes private markets’ capabilities please click here.

1 Source: Bloomberg as at 5 July 2024.

2 In Autumn 2022, then-prime minister Liz Truss sparked a financial crisis by trying to pass £45bn unfunded tax cuts.

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