UK General Election:
Key Labour policies and potential market impact

Policies and market impact

The 2024 General Election is upon us, and the result is not in doubt. All pollsters are agreed that the UK will vote in a new Labour government. The market reaction to any election depends on multiple factors.

One of the most important is the policies adopted by each party. In this case by the Labour party, who are running on a platform of economic growth and public-private investment partnerships. Different markets are sensitive to different policy changes, with stocks influenced by tax rates, energy policy, and infrastructure spending, while currency markets are more influenced by trade policy. The bond market is sensitive to the overall level of government spending, and the – real or perceived – fiscal responsibility of the incoming government.

“To understand how markets might move on Friday and beyond, we need to look closely at Labour’s policies and priorities. Two important areas for markets will be housebuilding and energy.”

No surprises likely

Opinion polls aren’t 100% reliable, but the picture in this election is pretty clear – a massive Labour victory. The market reaction to a Labour victory will vary across asset classes and across individual stocks. To understand how markets might move on Friday and beyond, we need to look closely at Labour’s policies and priorities. Two important areas for markets will be housebuilding and energy. In both cases, UK stocks are the most likely market where volatility – positive or negative – could appear.

Housebuilding

Labour have called for a massive expansion of housebuilding, with a shortage of housing units a well-documented problem in the British economy. The incoming government has announced plans to build 1.5 million new homes, including developing entirely new towns. Naturally, this will result in increased demand for building supplies, such as bricks, concrete, and cement, and quite possibly gains for UK housebuilders. Some of the top UK housebuilding stocks – Persimmon, Taylor Wimpey, and Barrat Developments – could benefit from these contracts.

Stocks like FTSE250 component Ibstock Brick, or civil engineer Balfour Beatty, could see increased interest if the promised houses materialise. Building new towns outright will come against significant barriers from the planning system and the supply of construction materials, creating volatility in related markets.

Energy

The Labour manifesto announces plans for a company called Great British Energy that would focus on investment opportunities in renewable energy. Though GBE would be a state-run enterprise without outside investors, the projects it would work on include public-private partnerships, potentially creating opportunities in UK energy stocks. Trading UK energy stocks is complicated, because the largest companies in the energy sector, such as BP, make their money from extraction and exploration rather than providing domestic electricity.

The FTSE100 stock Centrica, which operates under the brand name British Gas, is the largest domestic provider of natural gas. Stocks like Centrica may experience volatility around the election, as traders weigh up whether they are likely to benefit from public-private partnerships or lose out on market share to renewables. As with housebuilding, there could be market speculation as to whether Labour can achieve its goals in this area, causing market moves in both directions.

Trading policy changes

Specific policy changes can impact the price of single stocks. When screening stocks to find out where policy changes could hit the hardest, think about the sector and geography. Many UK stocks have a strong international focus, with large banking and mining groups often making a majority of their profits overseas. That means you need to look at the individual stock to find out whether it is likely to gain or lose from a Labour government.

Overall markets and indices

Historically, stock markets have performed worse after Labour victories. That doesn’t mean you can guarantee the same response this time around, but it’s possible there could be an initial market shock in the FTSE100 on Friday morning. Since the result of this election has been obvious for months, any downturn should be limited, with rallies following as traders adjust positions back to their priced-in levels.

Bonds and the Pound Sterling

Bond yields, which move in an inverse relationship to price, are influenced by the creditworthiness of the issuer. In the past, the Labour Party has had a reputation for high levels of spending, potentially making bond markets anxious about their return. The current Labour manifesto includes repeated calls for fiscal responsibility, and spending promises are, at least on paper, fully costed. So, although this time the market reaction may be muted, bond yields still could spike around the election.

Single stock opportunities

CFD traders are comfortable with volatility since they can go both long and short on stocks. That means traders can position themselves around any turbulence in UK energy stocks, which could be pushed in both directions by a focus on renewable energy, as well as the promise of public investment. Housebuilding stocks are a potential long opportunity, but this effect may evaporate if a general risk-off mood prevails. The best opportunities could be specific companies that stand to benefit the most from increased public investment, which is hard to predict at the best of times, and almost impossible with vague manifesto commitments.

Conclusion: managing volatility

A new government brings new opportunities to companies, industries, and traders. We don’t know exactly what the incoming Labour government will do, but we know the areas they have identified as key policy targets for the next five years. UK stocks will feel an impact from the election and change in government, possibly a negative one, but certain stocks and sectors could benefit if markets are convinced by Labour’s plans for growth.

Whatever happens, CFD traders should prepare for market volatility on Friday, as markets adjust to the new realities of a Labour government. As usual, proper risk management will be essential, with position sizing, stop losses, and portfolio diversification all vital to reducing the risk from a volatile stock market post-election.