A large Labour majority had been widely expected and “priced in” by traders, leading to a muted reaction for sterling.
The pound held steady against the US dollar after an exit poll revealed the Labour Party was on course for a landslide victory.
A respected exit poll by Ipsos, carried out for broadcasters including Sky News, was the first to put an estimate on the size of the large majority expected for Sir Keir Starmer’s party.
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The value of the pound changed little overnight against its main competitors, such as the dollar and euro.
A big Labour win had been widely expected and priced into financial markets.
The pound was up on the day versus the US currency at $1.27 but that was largely explained by the dollar weakening rather than any growth in support for the pound.
It did make up some ground versus the euro to trade at €1.18 after the exit poll was published.
Michael Metcalfe, head of macro strategy at State Street Global Markets, said: “Having been very negative of sterling for a very long time, institutional investors are actually going into this election quite neutral.
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That was partly, he said, because political risk has surged in the likes of France, which holds the second round of its parliamentary elections in three days’ time, and in the United States ahead of its presidential vote in November.
“The UK, oddly, has ended up with a neutral position in the middle,” Metcalfe said. “Also, I don’t think at any point has the result (of the election) been in any doubt.”
Both the FTSE 100 and domestically-focused FTSE 250 ended Thursday’s trading in positive territory, up by 0.9% and 0.3% respectively – in line with other European market performances.
In the wake of the exit poll being known, trading platform IG saw the FTSE 100 opening Friday’s session 0.4% higher. The implied figure will shift right up until 8am when the opening bell is rung.
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Dan Coatsworth, investment analyst at AJ Bell, said of the prospects: “The UK stock market barely moved the last time the country switched from a Conservative to Labour government and the same might happen.
“Investors priced in the impact of Labour winning the 2024 election long ago, thanks to the polls having implied a landslide win for the party throughout the six-week campaign.
“Markets have taken the prospect of a Labour government with equanimity, given the party’s manifesto promises not to jack up taxes and what feels like a charm offensive towards the City.
“It would take a big surprise to trigger any noticeable volatility on the markets.”
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The election was called by Rishi Sunak on 22 May.
Sterling is only fractionally stronger now against the dollar, the world’s reserve currency, than it was then.
It has struggled to make recent headway due to hefty dollar support from the delay to a US central bank interest rate cut.
London-based currency trading, along with the bond and stock markets, will be a better gauge of reaction.
Labour under Jeremy Corbyn in 2019 was widely seen as negative for the economy by the City but, under Sir Keir’s leadership, the party has shifted towards more traditional Tory territory.
Labour have promised a focus on bolstering economic growth, improving the country’s relationship with the EU and providing business with a policy clear path ahead.
The party has cashed in on the frustrations of the last parliament for investors amid a series of own goals, such as the fallout from the Truss mini-budget.
But Rachel Reeves, who is poised to become the country’s first female chancellor, is likely to enjoy only a short honeymoon period.
Stretched public finances, largely a result of COVID pandemic support and aid for energy bills following Russia’s invasion of Ukraine, will limit Labour’s ability to splash the cash given the party’s commitment not to raise the mainstream taxes.
Despite that, expect a flood of demands for what is available from investors and business groups alike ahead of the first budget of the new parliament, expected in the autumn.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
