A landslide victory for Keir Starmer in the general election on Thursday could hand Britain a stability premium in global markets, boosting the pound, shares and investment in the UK at a time of mounting political turmoil elsewhere, City investors have said.
In sharp contrast with Conservative party warnings over the dangers of a large Labour majority, analysts in the City of London said the prospect of a resounding mandate for Starmer’s party could secure Britain’s “safe haven” status among investors in an increasingly volatile world.
After failing to close the gap in opinion polls during the election campaign, Rishi Sunak made a last-ditch warning that a Starmer “supermajority” would “bankrupt people in every generation”.
However, City analysts said a Labour landslide could pave the way for global investment in Britain after years of political and economic uncertainty since the 2016 Brexit referendum under the Tories, which had clouded the prospects for international investors.
Highlighting mounting political instability on both sides of the Atlantic and the meltdown in financial markets triggered by Liz Truss’s mini-budget – when investors spoke of a “moron premium” for Britain – City experts said a clear outcome on Thursday could return Britain to a steadier footing.
Nuwan Goonetilleke, the head of shareholder assets at Phoenix Group, which manages more than £280bn in investments, said money was already pouring into London-listed assets in anticipation of a Labour victory.
“The UK is really being seen not just as a safe haven, but the safest of havens – especially in Europe,” he said.
“Given the previous gyrations seen in the markets, whether that’s Liz Truss or the leftwing policies from Jeremy Corbyn’s Labour in 2019, we’re not really seeing any of those wild swings now. That tells you how far the UK has come from Brexit when there were huge unknowns priced-in for the UK.
“With a Labour majority, it continues to really double down on that promise of economic stability, growth and wealth creation.”
The pound has rallied against the euro on global currency markets since Emmanuel Macron called snap elections in France in early June, in a development opening the door to a possible far-right victory or hung parliament in one of the EU’s most powerful economies.
Joshua Mahony, chief market analyst at Scope Markets, said: “Given the political shockwaves being felt around Europe, the prospect of a stable political environment could yet help place the UK economy as a haven for years to come.”
While UK government bond yields have remained stable in recent weeks, French borrowing costs have risen sharply. Investors said uncertainty over the outcome of the US presidential election in November had also bolstered UK assets.
Any other result than a clear Labour victory would come as a shock in City dealing rooms after failure by Sunak to close a 20-point gap in opinion polls, which show the Conservatives on track for the party’s worst defeat since at least 1906.
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Starmer has also shifted Labour to the economic centre while courting big business, drawing criticism from the left that his agenda for government would differ little from that of the Tories and hand influence to wealthy interests. However, some party insiders believe ditching Corbyn-era policies is important for wooing swing voters and tackling accusations of fiscal incompetence that have clung to the party since the 2008 financial crisis.
The Labour leader and his chancellor, Rachel Reeves, also argue that restoring political stability after years of Tory infighting – leading the party to its fourth prime minister since 2016 – could reinvigorate private investment in Britain, helping to meet his growth ambitions without the need for large tax rises or additional government borrowing.
While Sunak has argued “difficult decisions” taken under his premiership have helped the economy to “turn a corner,” which could enable interest rate cuts from the Bank of England, opinion polls suggest many voters are refusing to give him much credit after 14 years of Tory rule.
Michael Browne, chief investment officer at the asset manager Martin Currie, said Britain’s economy and financial markets could benefit from a period of stability under a Labour government that was “more moderate and international in tone”.
He said the situation was comparable to 1997 when UK government bonds and sterling rallied in anticipation of Tony Blair’s landslide victory. “To quote a well-known campaign slogan from 1997: ‘Things can only get better.’ With the current backdrop we would like to think so for the UK’s equity assets.”
