Labour Landslide – Update & Outlook

The Labour Party has won a landslide victory at the General Election, which brings to an end 14 years of Conservative governments, and we would like to give you an update on the likely impact to financial markets and your wealth.

Whilst the result is a seismic result in political terms the effect on UK equities, Gilts and the value of the Pound are likely to be muted. In contrast to recent elections, when such issues as Brexit and whether to completely change the State’s role in the economy were decided on, the difference between the two main Parties was actually fairly limited at this Election.

The incoming Chancellor, Rachel Reeves, has intimated that her tax, spend and borrowing policies will not be wildly different to what was already pencilled in. As a result we would not expect any significant impact on government borrowing costs.

Whilst the new Chancellor has committed to not raising tax on incomes (though the thresholds are likely to remain frozen), she has been more coy on whether she will look to raise more revenue from wealth taxes and Inheritance Tax. This has generated speculation that CGT rates will be increased and some Inheritance Tax exemptions will be removed. There has also been some suggestion that the new government will move to make the tax relief on pension contributions less generous. That said the Labour Party has previously ruled out an emergency budget over the summer and so these changes may not be imminent.

UK Stock Market
The UK stock market has been in the doldrums for several years as weak economic growth and political uncertainty has weighed on sentiment. Whilst improving the economic outlook is obviously a longer term issue the Election does at least remove the uncertainty. Such a large majority means that another Election is very unlikely for at least four years and as such some international investors may feel more comfortable coming back to UK equities.

Longer term
With the state of the public finances constraining what the incoming government can do with tax and spend their messages on improving the long-run growth rate of the economy have been more radical. Whether that be aggressively altering the planning laws to encourage building or large-scale investment in infrastructure projects the acid test will be whether the UK’s woeful productivity improves.

Statement issued on 05/07/2024 by:

Nigel Foster DipPFS