UK General Election:
Who won, and what it does mean for the markets?

Results

The UK General Election results are in: a landslide victory for the centre-left Labour Party. Immediate market reaction was positive, with both the FTSE100 and GBP moving up on Friday morning. Labour underperformed in the final polls by vote share, but still won a large victory, with 411 seats out of 650. This will allow them to govern the country for the next five years without serious external opposition.

What happened?

The Labour Party consistently polled over 40%, giving them a 20-point national lead in the weeks running up to the election, but won with 34% on the day. In terms of the number of seats, the result was a landslide, close to Blair’s 1997 Labour victory. The Conservative Party, led by former Prime Minister Rishi Sunak, came second, with 24% of the national vote share winning 121 seats – an enormous reversal of fortunes for a party that won 44% of the vote five years ago. The Conservatives lost votes to Labour, the centrist Liberal Democrats, and right-wing Reform UK.

Successes for small parties

Smaller parties performed unusually well, with the Liberal Democrats achieving their best-ever seat count at 72. Aside from the trio of Labour, Liberals and Conservatives, two other parties won more than a million votes nationally, the Green Party and Reform UK. Due to the “First Past the Post” electoral system, these two parties won comparatively few seats, with four for the Greens and five for Reform UK.

Market reaction

Markets reacted calmly to the election result, with small upticks in the GBP/USD as results were declared, and the FTSE100 opening gently on Friday morning. The result didn’t surprised anyone, so traders had time to balance portfolios and take out hedges, neutralising any volatility before the election. Markets also – so far – seem positive about Keir Starmer’s new Labour government, with key stocks Persimmon and Centrica both experiencing strong sessions on Friday 5th.

UK Government bond (Gilt) yields decreased slightly on Friday morning, indicating confidence in the creditworthiness of the British government. So far, volatility post-election has been mostly in a positive direction, and both risk-on and risk-off assets have increased in price. This could reflect institutional investors rotating into the UK as political uncertainty reduces.

“So far, volatility post-election has been mostly in a positive direction, and both risk-on and risk-off assets have increased in price.”

What happens now?

Barring unexpected events, it will be five years before the next general election, and such a large majority will make it easy for Labour to govern the country.

However, things like a considerably reduced turnout, the victories of several independent left-wing candidates over Labour incumbents, and strong performances from small parties, suggest the new Labour government’s win was based more on a desire to remove the Conservative Party, than based on popularity. But this will be of little concern to policymakers until the next election, as the British political system allows for effective parliamentary rule between regular elections. That means markets will react more to economic news, developments in the British economy, and external events, rather than volatile political instability.

Key Labour projects such as railway nationalisation, an increase in housebuilding, and extra spending on renewable energy, are all likely to go ahead. This could have varied impacts on individual stock prices and FX and bond markets, depending on how they fit into ongoing attempts to balance the government budget.

What markets should I watch going forward?

CFD traders active in UK markets probably have a good idea of how markets are reacting to Labour’s win, and the results have been positive for both risk-on and risk-off assets. Positive moves across FX, stock and bond markets could show renewed investor interest in UK assets. Value-based investors often point out that compared to their international rivals, UK stocks are historically very cheap, which may help drive positive sentiment in these markets after the election. However, the long-term trends that could potentially push equities higher will still involve shorter trends in both directions. As such, traders could have a better chance of finding long and short opportunities across UK financial markets.

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