Election 2024: FTSE 100 in the red but midcap index maintains gains after Labour landslide
Sterling was trading up around 0.1 per cent this morning at $1.277 while futures on the FTSE 100 edged up by around 0.2 per cent. Markets will open at 8am.
Equities lost some momentum on Friday afternoon, with London’s blue-chip index closing in the red following the election results while the midcap FTSE 250 made gains.
The results confirmed that Labour won a massive majority while the Conservatives look set to slump to the worst performance in their history.
The FTSE 100 ended 0.45 per cent lower at 8,203.93 having made gains earlier in the day. The midcap FTSE 250 in contrast rose 0.86 per cent to 20,786.65.
Gains on the midcap index were led by housebuilders on the back of hopes that Labour will be able to break through the planning logjam and ramp up the pace of construction.
Gilt yields, which reflect the cost of government borrowing, edged slightly lower too but remained largely unchanged.
Sterling was rose 0.2 per cent against the dollar to trade around $1.278 while it was 0.1 per cent higher against the euro at €1.18.
“The general election has resulted in a significant political shift for the UK and investors appear to welcome the changing of the guard, judging by how the more domestically focused FTSE 250 got off to a very strong start,” says Dan Coatsworth, investment analyst at AJ Bell.
“Political uncertainty is over and this removes one of the key risks around UK equities, so it’s feasible that more domestic and foreign investors are now looking for opportunities on the market. This suggests today’s reaction might not be a one-day sensation,” he added.
Michael Brown, senior research strategist at Pepperstone said market attention was already turning to how the new government will act over the coming weeks.
“For market participants…focus will rapidly turn to how the new Labour government act during the first 100 days in office,” he said.
Labour has pitched itself as the pro-business party and the party’s large majority should provide a stable platform on which to deliver its manifesto commitments.
It has promised to put economic growth at the centre of its policy agenda, with reforms to the planning regime expected to be announced in the King’s Speech later this month.
Rob Wood, chief UK economist for Pantheon Macroeconomics, said that a stable policy course should “unlock more business investment and attract greater foreign investment.”
Despite the limited market reaction, a few economists suggested that economic growth might pick up a little faster than expected over the coming years.
Analysts at Goldman Sachs raised their growth forecasts by 0.1 percentage points for 2025 and 2026.
“We continue to expect that Labour’s fiscal policy agenda will provide a modest boost to demand growth in the near-term,” they wrote.
Analysts at Capital Economics also suggested that a Labour government might generate some “upsides” to GDP, inflation and interest rates forecasts.
