A landslide victory for Keir Starmer in Thursday’s general election could give Britain a stability premium in global markets, boosting the pound, stocks and investment in the UK as political unrest mounts elsewhere, investors in the City say.
In a sharp contrast to warnings from the Conservative Party about the dangers of a large Labour majority, analysts in the City of London said the prospect of a compelling mandate for Starmer’s party could secure Britain’s “safe haven” status among investors in an increasingly volatile world.
After failing to close the polling gap during the election campaign, Rishi Sunak was the latest to warn that a Starmer “supermajority” would “bankrupt people in every generation”.
However, City analysts said a landslide Labour victory 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 outlook for international investors.
City experts highlighted growing political instability on both sides of the Atlantic and the collapse in financial markets triggered by Liz Truss’s mini-budget – which investors spoke of as a “moron premium” for Britain – and said a clear outcome on Thursday could put Britain back on a more stable footing.
Nuwan Goonetilleke, head of shareholder assets at Phoenix Group, which manages more than £280bn of investments, said money was already being poured into assets on the London Stock Exchange in anticipation of a Labour victory.
“The UK is seen not just as a safe haven, but as the safest of all havens – particularly in Europe,” he said.
“Given the previous swings in the markets, whether that’s Liz Truss or Jeremy Corbyn’s left-wing Labour policies 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 big unknowns priced in for the UK.
“With a Labour majority, it will continue to deliver on the promise of economic stability, growth and wealth creation.”
The pound has risen against the euro on global currency markets since Emmanuel Macron called snap elections in France in early June, opening the door to a possible far-right victory or a parliament that cannot win in one of the EU’s most powerful economies.
Joshua Mahony, chief market analyst at Scope Markets, said: “Given the political shockwaves being felt across Europe, the prospect of a stable political environment could make the UK economy a safe haven for years to come.”
While British government bond yields have held steady 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 British assets.
Any result other than a clear Labour victory would come as a shock to the City’s dealing rooms after Sunak failed to close a 20-point poll deficit, sending the Conservatives on course for their biggest defeat since at least 1906.
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Starmer has also moved Labour to the economic centre while courting big business, prompting criticism from the left that his government agenda is little different from the Tories and gives influence to wealthy interests. However, some party insiders believe it is important to abandon Corbyn-era policies to win over floating voters and address accusations of fiscal incompetence that have dogged the party since the 2008 financial crisis.
The Labour leader and his finance minister, Rachel Reeves, also argue that restoring political stability after years of internal Tory bickering – which has helped the party to its fourth prime minister since 2016 – could revive private investment in Britain, helping it achieve its growth ambitions without the need for big tax rises or extra government borrowing.
While Sunak has argued that the “tough decisions” he has made during his premiership have helped the economy “reach a turning point” that could allow for interest rate cuts by the Bank of England, opinion polls suggest many voters are refusing to give him much credit after 14 years of Tory government.
Michael Browne, chief investment officer at asset manager Martin Currie, said the UK economy and financial markets could benefit from a period of stability under a Labour government that is “more moderate and international in tone”.
He said the situation was similar to 1997, when British government bonds and sterling rose in anticipation of Tony Blair’s landslide victory. “To quote a familiar campaign slogan from 1997: ‘Things can only get better.’ In the current backdrop, we would like to think that is the case for UK stock holdings.”