The UK national election on Thursday propelled the Labour Party to a sweeping victory and Labour leader Keir Starmer will become the next Prime Minister. In the six-week election campaign of the election, Labour had a massive lead in the polls and there was no doubt it would win a huge majority in parliament. The latest update indicates that Labour has won 412 seats and the Conservatives had plunged to 121 seats. This gives Labour a massive 160-seat majority in the House of Commons.
The Labour victory ends fourteen years of Conservative rule and with power comes the responsibility to revive the weak UK economy, which fell into a recession in the second half of 2023. Productivity and wages have been stagnant and the national debt is now larger than the size of the economy. Inflation has finally dropped to the 2% target but the Bank of England hasn’t lowered interest rates and that has taken a toll on businesses and households.
How will the financial markets react?
Traditionally, the Conservatives have been more business-friendly than Labour. The latter have favoured raising taxes on the highest earners and large corporations in order to fund public services and reduce inequality. Labour has, however, shifted more to the centre and Labour leader Keir Starmer has pledged to show fiscal restraint in order to lower the UK’s massive debt levels. If as Prime Minister Starmer delivers on this promise, it would preclude higher taxes or raising government spending.
The financial markets will be watching carefully but investors didn’t shown any jitters ahead of the Labour landslide. The FTSE 100, the benchmark UK stock market index, is up 0.68% this week and the British pound has climbed 1.1% against the US dollar this week. With a huge majority in parliament, Starmer will have an easier time pushing through legislation, which means that political uncertainty should not be a factor that the markets have to worry about.
