WHAT ARE THE MARKET IMPLICATIONS OF A LABOUR VICTORY?

05.06.2024 With the Labour Party around twenty percentage points ahead in the opinion polls I take a look at the market implications of a Labour victory.

Traditionally a Labour government is deemed more likely to borrow and spend than a Conservative government. However, an important side effect of the Liz Truss mini budget crisis is that there is now a strong emphasis on fiscal responsibility. The power of the independent fiscal watchdog, the Office for Budget Responsibility, has been dramatically increased. So, its views on fiscal sustainability have to be incorporated into government policy. As a result, the impact of the election on the UK government bond market is likely to be neutral.

A key implication of the current high debt, high taxation environment is that there is little leeway to increase spending on Labour priority areas such as the NHS. This might force the new government into adopting a more coherent growth strategy. This could involve trying to reduce some of the trade barriers associated with the Brexit agreement as well as measures to boost the export of services to selected overseas trade partners. Another policy option might be more targeted support for key British industries such as life sciences. Finally reforms to the planning system, that led to a step change in the number of new houses built, would also help boost growth. If these policy measures were presented as a package they could provide a shot in the arm for domestically focused equities.

For information only. Investors should seek professional advice for their own circumstances before making an investment.

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This post was written by Robin