UK stocks rise and pound edges up as investors digest Labour election win | Stock markets

😕UK stocks rose and the pound edged higher on Friday morning as investors reacted to a decisive Labour victory in the general election.

After a landslide for Keir Starmer’s party that was widely expected in financial markets, the FTSE 100 rose 0.4% at the open, while the more domestic focused FTSE 250 increased by as much as 1.8% to its highest point since April 2022.

City analysts said a clear Labour win could bring stability to British politics after years of turmoil under the Conservatives since the 2016 Brexit vote, while positioning Britain as a “safe haven” for global investors amid rising political instability in the US and France.

“A landslide victory provides the sort of clarity and stability that equity markets need in an increasingly volatile world,” said Ben Ritchie, the head of developed market equities at the fund manager abrdn. “If the new government get this right, businesses with significant exposure to the UK economy should be the likely winners.”

Housebuilders were the biggest gainers, with housing stocks collectively up by 2.3%, as traders judged that Labour’s promise to build 1.5m new homes and reform planning rules would benefit the sector.

The housebuilders Persimmon and Vistry were the top risers on the FTSE 100, both up about 3%. Barratt and Taylor Wimpey rose about 2%.

Analysts at the investment bank Jefferies said Labour’s win was “a major positive for UK housebuilders” as the party “appears more supportive, engaged and focused on delivery of homes”.

The pound rose 0.1% against the dollar to almost $1.28, with sterling the strongest performing big currency against the dollar this year after rallying in the run-up to Thursday’s vote. Government borrowing costs remained roughly unchanged.

Currency markets had widely priced in a Labour landslide and Starmer’s key message that he would seek to restore stability, drive economic growth and take a fiscally responsible approach to government.

After four prime ministers in five years, sterling has recovered from a record low of $1.03 in 2022, when Liz Truss’s mini budget triggered a meltdown in financial markets that required the Bank of England to intervene to prevent pension funds from going bust.

Labour’s election victory comes against a backdrop of an improving economy. Inflation has returned to the government’s 2% target, after a prolonged period of soaring price rises and a peak inflation rate of 11.1% in October 2022. That was the highest level in 41 years.

The economy has recovered from a shallow recession at the end of 2023 and grew by 0.7% in the first quarter of the 2024, in the latest official data.

As inflation comes down, the Bank of England is expected to start cutting interest rates, possibly as soon as August, in a move that will provide relief and hope for households facing sharply higher mortgage costs.

Kathleen Brooks, the research director at the brokerage XTB, said investor focus would shift to what Labour does in the early days of power.

“The focus now will quickly shift to Sir Keir Starmer’s first 100 days in office, and how he lays out his economic plans to boost growth at the same time as improving public services.”