Labour's landslide victory could boost UK investment and confidence, say City analysts | Financial sector

Investors in London said a landslide victory for Keir Starmer in Thursday's general election would give Britain a stability premium in global markets, boosting the British pound, stocks and investments at a time of rising political turmoil elsewhere.

In stark contrast to Conservative warnings about the risks of a Labour majority, analysts at the City of London said the prospect of a Starmer party winning strong support could secure Britain as a safe haven for investors in a world where it is increasingly uncertain.

Rishi Sunak has issued a final warning that Starmer's overwhelming majority would bankrupt an entire generation after failing to close the gap in the polls during the campaign.

But City analysts said a landslide Labour victory could open the way for global investment in Britain after years of political and economic uncertainty since the 2016 Brexit referendum, when the Conservatives were in power, had clouded the outlook for international investors.

With political instability rising on both sides of the Atlantic and financial markets crashing over Leeds Truss's budget plan, with investors talking about a ridiculous premium on Britain, City experts said a clearer outcome on Thursday could put Britain on more stable footing.

Nuwan Gunanethilike, head of shareholder wealth at Phoenix Group, which manages more than $280 billion in investments, said money was already pouring into London-listed assets in anticipation of a Labor victory.

He said Britain was seen not just as a safe haven, but as one of the safest havens in Europe.

Given the volatility we have seen in the market before, whether it was the Leeds Truss or the left-wing policies of Jeremy Corbyn’s Labour Party in 2019, we are not seeing any of that kind of wild swings at the moment. That speaks volumes about how far the UK has come from Brexit. There was a huge unknown about the UK at the time that was priced in.

With Labour winning a majority, the party is strengthening its commitment to economic stability, growth and wealth creation.

The pound has gained against the euro in global currency markets since Emmanuel Macron called early elections in France in early June, raising the possibility of a far-right victory or a parliamentary deadlock in one of the EU's most powerful economies.

Joshua Mahoney, senior market analyst at Scope Markets, said: Given the political shockwaves being felt across Europe, the prospect of a stable political environment could help to keep the UK economy in safe hands for the next few years.

UK government bond yields have held steady in recent weeks, but French borrowing costs have surged. Investors said uncertainty over the outcome of the US presidential election in November also boosted UK assets.

Polls suggest the Conservatives are set for their worst defeat since at least 1906, and with Sunak failing to close the gap to 20 percentage points in the polls, anything less than a clear Labour victory would come as a shock in the London market trading rooms.

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Starmer has also been criticised on the left for courting big business and moving Labour to the heart of the economy, making his government’s agenda not all that different from the Conservatives’ and giving it leverage over wealthy interests. But some party insiders believe that abandoning Corbyn-era policies is crucial to attracting swing voters and addressing accusations of financial incompetence that have dogged the party since the 2008 financial crisis.

Labour leader and chancellor Rachel Reeves has argued that restoring political stability after years of Tory infighting that has produced a fourth Tory prime minister since 2016 would boost private investment and enable the UK to hit its growth targets without big tax increases or additional government borrowing.

Sunack has claimed that tough decisions made during his time as prime minister helped the economy improve, allowing the Bank of England to cut interest rates, but polls show many voters do not give Sunack much credit after 14 years of Conservative rule.

Michael Brown, chief investment officer at asset management firm Martin Currie, said a period of stability under a more moderate and internationally oriented Labour government could be good for the UK economy and financial markets.

He said the situation was similar to 1997, when British government bonds and the pound rallied in anticipation of Tony Blair's landslide victory. To quote a famous 1997 election slogan, things can only get better. Given the current backdrop, I think British equity assets will do the same.

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