UK Stocks Surge as Labour Secures Landslide Election Victory

UK stocks experienced a significant uplift in London on Friday morning, fueled by the confirmation of Labour’s overwhelming election triumph overnight.

The FTSE 100, the leading index of the London stock market, climbed 31.57 points, or 0.4%, to reach 8,272.83, building on nearly a 1% rise from Thursday.

Housebuilders emerged as the top beneficiaries, with investors anticipating that Labour’s initiative to streamline the planning system would enable developers to construct more homes. “We view this political shift as a substantial positive for UK housebuilders,” noted Glynis Johnson, an industry analyst at Jefferies. “A Labour-led government seems more supportive, engaged, and committed to delivering housing.”

Vistry, formerly Bovis, increased by 26¼p, or 2.1%, to £12.85; Taylor Wimpey shares advanced 3½p, or 2.3%, to 152¼p; and Barratt Developments, the UK’s largest developer by volume, rose by 13½p, or 2.7%, to 505½p.

The FTSE 250, which generally includes companies with a more domestic focus, jumped 256.21 points, or 1.2%, to 20,866.55.

The growth was widespread, with only 18 out of the index’s 250 companies posting losses shortly after the market opened. Retail, travel, and leisure stocks were buoyed by traders’ expectations that Labour’s decisive win would bolster consumer confidence and spending.

Ocado, the online grocery retailer, increased by 15p, or 4.9%, to 320½p; budget airline Wizz Air soared 75p, or 3.6%, to £21.35; and Pets at Home, the pet store chain, climbed 7¾p, or 2.6%, to 303½p.

In currency markets, the pound remained strong, inching up less than 0.1% against both the euro and the dollar to €1.180 and $1.277, respectively.

Sterling had rallied earlier in the week as it became increasingly apparent that Labour would secure a decisive win. Over the past five days, the pound has appreciated by more than 1% against the dollar.

Paul Dales, chief UK economist at Capital Economics, stated: “The pound’s stability overnight comes as no surprise, as a Labour win was already factored into the markets.”

He added: “The significant change in the political landscape that ushered in the first Labour government since May 2010 is unlikely to cause a similarly substantial shift in the economic landscape. However, the new Labour government’s policies may generate some upward revisions to our GDP, inflation, and interest rate forecasts.”

Bond markets were relatively subdued, although there were signs of increased buying of UK government bonds, indicating trader support for Labour’s financial policies. The yield on a two-year UK gilt, which moves inversely to the bond’s price, fell to 4.151%, while the benchmark ten-year yield retreated to 4.177%.

As a reminder, the mini-budget from Liz Truss and Kwasi Kwarteng in September 2022 caused UK government bonds to plummet, leading to an unprecedented rise in gilt yields.

Jim Reid, head of macro research at Deutsche Bank, commented that the limited reaction in the currency and bond markets underscored that the election result had long been anticipated.