By Cristina Gallardo


British markets welcomed the highly-anticipated Labour Party's landslide electoral victory, encouraged by the prospect of increased stability.

The FTSE 100 index in London rose 0.21% in early trade Friday, while the more domestically focused FTSE 250 rose 1.2%.

U.K. stocks were boosted by the prospect of an end to 14 years of political volatility in Britain, which has been ruled by five Conservative prime ministers in the last nine years.

With two constituencies yet to declare, Keir Starmer's Labour Party had won 412 seats of a total 650 in the U.K. parliament. The Conservative Party, which ruled the U.K. for the past 14 years, came in second with 121 seats.

The centrist, pro-European Union Liberal Democrat party made strong gains, achieving 71 seats, while the Scottish National Party obtained nine seats, down from 48 in 2019. The far-right Reform UK party, led by eurosceptic Nigel Farage, entered parliament with four seats, with 33 seats going to other parties.

Stephen Phipson, chief executive of the manufacturing industry group Make UK, said businesses "will welcome such a clear result and an end to the political and economic instability of the last few years."

U.K. housebuilders made strong gains and lead the FTSE 100 index risers, fuelled by Labour's target of building 1.5 million homes within the next five years, with the details of its housebuilding program planned for release within its first month in power. Barratt Developments shares went up 2.6%, Taylor Wimpey shares grew 2.5%, and Berkeley Group shares rose 1.8% in early trade.

Bank stocks, meanwhile, were mixed. NatWest shares rose 0.4%, while Barclays' fell 0.2% after rising in early trade. Asian-focused banking giant HSBC's shares in London fell 1.4%.

The pound strengthened 0.1% to 1.2775 against the dollar, while the euro is flat at 0.8474 versus sterling in early Friday trading. Going forward, Deutsche Bank analysts expect the pound to remain broadly unchanged. The Bank of England has given no clear signs of when it will be able to start cutting interest rates, but is widely expected to make its first cut in more than four years at its August meeting. Interest rates currently stand at 5.25%.

The 10-year gilt, meanwhile, fell 4.5 basis points to 4.157% following the election result, according to Tradeweb.

The markets will now eagerly await the Labour government's legislative agenda, which King Charles will present to parliament on July 17. That will give a first indication of the what the new government's first autumn budget may look like.

Labour has already set out about 60 changes to employment laws that it wants to implement within its first 100 days in power, including a ban on zero-hours contracts and removing the waiting period for statutory sick pay, which currently kicks in from day three. Business groups have said that the latter was the most financially material policy among those concerning workers' rights.

Goldman Sachs analysts raised their growth forecast for the U.K. by 0.1 percentage points in both 2025 and 2026 to 1.6% and 1.5%, respectively, and said they expect Labour's fiscal policy agenda to provide a modest boost to demand growth in the near-term. However, they warned that tax increases and reduced net migration could limit growth in the medium-term.

Lindsay James, investment strategist at Quilter Investors, said businesses and investors have felt "comfortable with the messages" issued by Labour.

"Labour governments have not been considered natural allies in the past, but the demise of the London market will require it do give it some sort of stimulus, especially if it wants growth to return to the economy," Lindsay said.


Write to Cristina Gallardo at cristina.gallardo@wsj.com


(END) Dow Jones Newswires

07-05-24 0557ET