The British pound stayed strong, but London's FTSE 100 index had trouble keeping its gains, overshadowed by economic developments abroad even as Labour's anticipated victory in the General Election became a reality.
The Pound Rose, While the FTSE 100 Index Declined Despite Labour's Victory
The election result made the market quiet because the financial sector already expected the Labour Party to win by a significant margin. Some financial experts think the new government will bring a period of calm and steadiness.
On Friday afternoon, the value of the British pound went up by 0.3% to reach 1.28 US dollars, which is the highest it has been since mid-June. It also increased by 0.2% against the euro, reaching 1.182.
However, the FTSE 100 closed 0.45% lower, reversing earlier gains spurred by Labour’s landslide, which had initially boosted housebuilders on hopes for increased housing development nationwide. The focus then turned to recent US employment figures, which revealed ongoing challenges in the job market, a key consideration for decision-makers setting interest rates in the largest global economy.
Victoria Scholar, head of investment at interactive investor, remarked, "The calmness across financial markets indicates that Labour’s overwhelming win had been well-forecasted by polls and thus incorporated into market prices."
She contrasted this with the market turmoil following Liz Truss’s mini-Budget in 2022, which had caused bonds and the pound to plummet. "Today’s subdued market reaction suggests investors see this election outcome as a democratic endorsement of a new political era promising stability and calm," Scholar added.
The market will now pay attention to the State Opening of Parliament and the King's Speech on July 17. These events will reveal new plans, and there might be a decision to lower interest rates in August.
Challenges and Opportunities for the New Administration
Susannah Streeter, head of money and markets at Hargreaves Lansdown, noted, "There may be a honeymoon period for the new administration, but challenging decisions await. The substantial victory and the rise in backing for smaller political groups and independent candidates will make Labour Members of Parliament cautious about their chances in the upcoming election."
Streeter said Labor needs to get things done while being careful with money. "The priority will be to keep markets steady in the initial days, weeks, and months of the new administration without excessive spending promises," she said.
On the FTSE 100, Persimmon led the charge among housebuilders, gaining over 3% in morning trading due to optimism about planning reforms under the new Labour Government. Vistry followed with a 3% rise, while Barratt Developments and Taylor Wimpey also saw significant gains, each up 2%.
On the other hand, banks did not do well at the start of trading. HSBC's value dropped by 1.3%, making it the worst performer on the FTSE 100, and Standard Chartered also fell by nearly 1%.
Market analysts suggested that traders might now turn their attention to the second round of the French elections, which has recently had a more pronounced impact on European financial markets. France is set to hold its general election on Sunday, following a surprising first-round lead by the far-right National Rally party.