Closing summary
Keir Starmer promised “stability and moderation” in his first speech as prime minister outside 10 Downing Street, after Labour won a landslide victory that ended 14 years of Conservative government.
This had been expected and “priced into” financial markets, so the market reaction was muted today. The pound rose by 0.4% against the dollar to $1.2809, and by 0.3% against the euro to €1.1826.
The FTSE 100 index rose by 0.4% in the morning and later gave up its gains to close 37.33 points, or 0.45% lower, at 8,203.93. The domestically-focused FTSE 250 ended the day 0.86% higher at 20,786.65, a gain of 176.31 points.
Housebuilders rallied on the London stock market, as investors bet that Starmer’s pledge to bulldoze planning rules and build 1.5m new homes would benefit the sector.
Vistry Group rose 3.4%, Taylor Wimpey added 2.8% and Barratt gained 2.4% while Persimmon and Berkeley Group both closed 2.2% higher.
Starmer appointed Rachel Reeves, a former Bank of England economist, as chancellor. She is the UK’s first female chancellor.
There were mixed feelings in the City, where Jasper Jolly and Mahliqa Ali talked to a number of workers.
Here is some reaction from a range of business leaders:
Thank you for reading. We’ll be back on Monday. Have a great weekend. Take care! – JK
The Invest in Women Taskforce has welcomed the appointment of Rachel Reeves as the first female chancellor, which she co-chairs. Fellow co-chair Debbie Wosskow said:
A female chancellor, one of the highest offices in the country, who has already vowed to put women at the heart of economic plans, is so vital. A female chancellor who also recognises the billions that female entrepreneurs could add to Britain’s economy is even better.
Reeves has already vowed to close the gender pay gap once and for all, and to make flexible working the norm. These are structural drivers of inequality that should be addressed at a policy level and will play an integral part in allowing women to embrace entrepreneurship.
For the most effective change, though, we need to enable a new era of public and private sector collaboration. Just 2% of capital investment goes into all-female founded teams in the UK, and we need to break this decades-long cycle. This is exactly what the taskforce exists to do and, by working with the new chancellor, we will make great strides this year and put the UK on the map for female entrepreneurs.
Former Nissan and Aston Martin executive Andy Palmer has said that the Labour party could signal a new phase for the UK automotive industry.
Palmer was chief operating officer at Japanese carmaker Nissan, bringing mass manufacturing of electric cars to the UK for the first time. He then led British sportscar maker Aston Martin until 2020. He said he hoped a stable government could attract more inward investment from major companies to build in the UK.
He said:
I’m no politician, but I am an auto guy, an industry guy. What I saw over the last five years was a disengagement with industry and business.
I woke up today with probably a greater sense of optimism for an awful long time, at least in that I’m pretty sure the Labour party will listen to autos and business.
Palmer said he believed that the UK needs more battery manufacturing. He is now chair of a Slovakian battery company, Inobat, which could potentially benefit from government support if it were to invest in the UK.
We’ve fallen behind dramatically in that green revolution. We need to grasp it.
Updated
Reeves has a tough task on her hands. Andrew Hunter, a senior economist for Moody’s Analytics, said the Labour may soon have to choose between higher taxes, higher borrowing or spending cuts.
The new Labour government has an historically strong electoral mandate, but will still need to tread a fine line between enacting the required spending and reforms to improve public services and revitalise the economy, and maintaining the confidence of financial markets.
Moreover, these challenges come at a time when the economy already faces a variety of other risks, including from geopolitical tensions or the possibility that persistent inflation could warrant interest rates staying high for longer than currently assumed.
Attracting sufficient levels of private-sector capital through their green investment plans will likely to be key to Labour’s hopes for a sustained resurgence in economic growth. But, while there is an upside risk that this succeeds and helps drive a sustained improvement in the economy’s supply side performance over the coming years, it is not our current baseline forecast.
Rachel Reeves, a former Bank of England economist, has become the UK’s first female chancellor. She posted on X:
It is the honour of my life to have been appointed Chancellor of the Exchequer.
— Rachel Reeves (@RachelReevesMP) July 5, 2024
Economic growth was the Labour Party’s mission. It is now a national mission.
Let’s get to work. pic.twitter.com/PchJFePDJa
Rachel Reeves has just gone into 10 Downing Street to be appointed chancellor.
Keir Starmer and Rachel Reeves, due to be appointed chancellor shortly, have been running a charm offensive with the City of London’s financial sector. Will it work?
Alasdair Haynes, chief executive of Aquis Exchange, an alternative stock exchange focused on smaller companies, said:
The first thing they’ve got to do is gain the confidence of the City. The first 100 days is really going to matter.
Reeves has “done a good job so far” of reassuring the City with her pitch of stability, said Haynes. However, he said he wanted the government to offer more help to growing companies, and incentives to keep them in the UK rather than going elsewhere. He would particularly like the extension of the enterprise investment scheme, a tax break for investors, to companies that are growing quickly (including many that are listed on his exchange).
However, Haynes is sceptical about plans to raise taxes that would hit some of the City’s wealthiest, such as abolishing a loophole that allows private equity bosses to pay capital gains tax on earnings rather than higher income tax, abolishing the tax break for non-domiciled people, and taxing private schools.
“It doesn’t help when you read things in the Guardian about putting up capital gains tax,” said Haynes. “That kills entrepreneurship. That’s just total madness.”
Mark Mullen, chief executive at Atom Bank, said:
There are clear similarities between running a business and running an economy. When revenues stagnate, cost cutting takes over. For years now it feels like we’ve been trying to shrink to greatness and it’s time to change course. We urgently need to invest. In our public services, in infrastructure, in our schools and universities and in housing. Our new government must foster productivity, encouraging regulators to facilitate real competition and holding businesses to account for their failures. It must encourage banks to support SMEs and drive out complacency about falling service standards. Real competition leads to better customer outcomes.
When it comes to employee welfare, companies should be encouraged to follow the data and not the dogma. Happy and healthy colleagues are good for business. And our path to net zero can either be a burden or an opportunity. We should make it the latter and incentivise companies to invest in renewables and in a sustainable future. A new government and prime minister offers us a rare opportunity to re-boot UK plc. We must seize it with both hands.
Bruce Carnegie-Brown, chairman of insurance marketplace Lloyd’s, said:
Lloyd’s looks forward to partnering with the new UK Government to generate growth and to build resilience into our economy. Our role is to provide critical solutions to support disaster resilience, insuring the transition and bringing global investment to the UK. We look to the government to bring a period of greater stability and to enact reforms necessary to improve the economy’s competitiveness.
Updated
City bosses call for infrastructure investment
Back to the UK election.
Bosses in the financial sector have called on the new Labour government to boost investment and increase productivity after the sweeping win under Prime Minister Keir Starmer, write Kalyeena Makortoff and Jasper Jolly.
The financial industry is one of the UK’s key sectors, accounting for about one in every 12 pounds generated by the British economy.
Labour described financial services in its manifesto as “one of Britain’s greatest success stories”, and has pledged to bring forward public-private partnerships to fund investments in infrastructure.
Here is what some of the City’s bosses had to say.
Andrea Rossi, chief executive of investment manager M&G, said:
With over 12 million people in the UK seeking assistance to achieve financial security and the UK’s financial advice gap widening (only 9% of Brits currently have access to advice), we would want to see any new government implementing policies that encourage long term savings and support better retirement outcomes.
There is currently an acute set of societal challenges and barriers to saving for many, with the cost-of-living crisis drastically reducing disposable incomes. We’d look to work with the next government and the wider financial services industry to provide more opportunity for savers to benefit from financial products that meet their investment needs.
As a member of Labour’s British Infrastructure Council I look forward to working with the government to unlock private investment to boost infrastructure investment in the UK. Private-public investment initiatives will be key in getting capital to sustainable British real estate and infrastructure projects that can position the UK for sustainable growth.
Updated
Paul Ashworth, chief North America economist, said despite June’s forecast-beating 206,000 gain in non-farm payrolls, overall this was a “disappointing” report given the total 111,000 downward revisions to past months and the further rise in the unemployment rate to 4.1%, “which puts us one step closer to triggering the Sahm rule on recessions”.
That 206,000 gain was also not nearly as good as it looks at first glance, with 70,000 coming from government jobs.
Of the 136,00 increase in private payrolls, health care and social assistance accounted for 82,000 of those additional jobs. That suggests cyclical employment increased by only around 50,000, adding to the evidence of weakness in GDP growth, he said.
Admittedly, the rise in the unemployment rate to 4.1%, from 4.0%, was for the “right” reasons, with a 277,000 increase in the labour force eclipsing a muted 116,000 increase in the household survey measure of employment.
That means we’re getting closer to triggering the so-called Sahm rule, although since the rate is being driven up mainly by strong labour supply rather than weak labour demand, we would caution against relying on it too heavily in what has been a unique cycle in many respects.
Updated
The 206,000 increase in employment in June was similar to the average monthly gain of 220,000 over the past year, the bureau said.
Government employment rose by 70,000 in June, higher than the average monthly gain of 49,000 over the past 12 months. Healthcare added 49,000 jobs, lower than the average monthly gain of 64,000 over the prior 12 months. Employment in social assistance increased by 34,000 in June, primarily in individual and family services (+26,000). Construction added 27,000 jobs in June, higher than the average monthly gain of 20,000 over the past year.
Michael McDonough, chief economist of financial products at Bloomberg, said on X:
3M Net Change in Non-Farm Payrolls from ECAN<GO>: The trend is clear: pic.twitter.com/DELLZwk8Ds
— Michael McDonough (@M_McDonough) July 5, 2024
Updated
Job gains occurred in government, health care, social assistance, and construction, the US Bureau of Labor Statistics said.
The number of long-term unemployed – those out of work for 27 weeks or more – rose by 166,000 to 1.5 million in June, up from 1.1 million a year earlier. The long-term unemployed accounted for 22.2% of all jobless people in June.
Average hourly earnings increased by 0.3% month on month, leaving the annual growth rate unchanged at 3.9%.
Updated
US jobless rate ticks up to 4.1%, highest since November 2021
Non-farm payrolls, key US job market data that is closely watched by the US Federal Reserve bank and financial markets, is out.
The unemployment rate has unexpectedly ticked up to 4.1% in June from 4% in May, the highest since November 2021, according to the Bureau of Labor Statistics. The economy added 206,000 new jobs –– more than the 190,000 forecast by economists.
However, May’s increase of 272,000 jobs was revised lower to 218,000 and April’s figure was also revised to 108,000 from 165,000.
Stock market futures rose on the news, pointing to a higher open on Wall Street later, as the data fuelled hopes for interest rate cuts.
Updated
UK’s green transition must start now, say experts
Labour’s victory in the general election must mark the start of the UK’s transformation to a green and low-carbon economy and society, campaigners and experts have said as the scale of the election win became clear.
The Conservatives’ U-turns on the environment had been “as popular with voters as a root canal”, according to Greenpeace, as the party sank to its worst electoral defeat in modern times.
The Green party also had its strongest ever general election performance, quadrupling its representation in parliament.
This, coupled with Labour’s wide margin of victory, gives Keir Starmer, the next prime minister, a strong mandate to take bold action on net zero and nature, experts and campaigners said.
Markets left barely stirred by Labour’s thumping election win
Here is some analysis from our economics editor Larry Elliott:
Shares rose a bit. The pound barely budged on the currency markets. There was no shortage of demand for UK government bonds. A dramatic night in politics left the City relatively unmoved.
There were three big reasons for that. The first was that a thumping Labour victory had been expected for months. It was, in the parlance of financial markets, fully priced in. A hung parliament would have been a different story but there was never any real prospect of that, and once the results of the exit poll were announced the result was not in doubt. International investors are far more worried about what might happen in the second round of the French elections on Sunday than they were about the outcome in the UK.
The second reason there was only the slightest of reaction to the biggest Conservative defeat in history is that the markets think little will change. The small opening rise in the FTSE 100 index of leading London shares was led by housebuilders in anticipation of changes to planning law but Labour’s economic plans are modest and cautious. It has ruled out big increases in spending and taxes and will be subject to rules governing how much it can borrow.
Here is our latest market story:
World stocks at fresh record highs, euro hits three-week high ahead of French election run-off
Gains on the UK’s FTSE 100 index have petered out and the blue-chip index is now less than 10 points ahead at 8,250, a 0.1% gain. It rose by 0.4% earlier after Keir Starmer’s Labour party cruised to victory in yesterday’s general election, which ends 14 years of Conservative rule.
The mid-cap FTSE 250, which is more domestically-focused, is still 1.1% ahead, having climbed 231 points to 20,842. UK government bond prices rose and sterling rose by around 0.2% against the dollar and the euro, to $1.2786 and €1.1814.
World stocks hit fresh record highs amid optimism over US rate cuts ahead of key jobs data today, and the euro hit a three-week high ahead of the second round of French elections on Sunday. It rose as high as $1.0825 as polls suggest that France’s far-right National Rally party will fall short of an outright majority.
There has been political wrangling by the “republican front,” which saw more than 200 candidates across the political spectrum pull out of three-way second rounds in recent days to pave the path for candidates best placed to defeat the far-right party in their district.
The French national football team captain Kylian Mbappé urged people to vote after what he called a “catastrophic” first round last Sunday when the Rassemblement National (RN) party came first. He said:
I think that more than ever we have to go and vote, it’s really urgent. We can’t leave our country in the hands of these people, it’s really urgent.
MSCI’s world stock index rose 0.3% and European shares climbed 0.4% on the pan-European Stoxx 600.
US non-farm payrolls, out in just over an hour, are expected to show that employers added 190,000 jobs last month following May’s 272,000.
Updated
North Sea oil producers urge tax clarity
North Sea oil and gas producers have urged incoming prime minister Keir Starmer for clarity around his election promise to increase tax on the sector, warning that it could lead to a slump in output and revenue and endanger jobs.
Labour has said it will raise the windfall tax on energy producers, first imposed in 2022 after energy prices soared following Russia’s invasion of Ukraine, from 75% to 78%. The windfall tax is due to run until 2029.
David Latin, chairman of Serica Energy, said without clarity, investment and taxes from oil and gas could drop rapidly. He told Reuters:
There’s this misunderstanding which is that somehow we’re a golden goose and we’ll just keep laying eggs. But if you don’t feed the goose with investment dollars it’ll keel over and there will be no more eggs.
Earlier today, the industry body Offshore Energies UK said it was “deeply concerned over Labour proposals to impose a further windfall tax and end new licences”.
David Whitehouse, the chief executive, said:
These policies, if poorly managed, and without industry input will threaten jobs and undermine the decarbonisation of the UK economy. The details matter.
A report by the investment bank Stifel has estimated that 100,000 jobs could be lost under a “worst-case scenario” –- if the Labour party commits to no new drilling in the North Sea (which it has not done yet).
Meanwhile, the UK Energy Research Centre celebrated the Labour win as a “landslide for a green economy”.
Today's Energy News:
— UKERC (@UKERCHQ) July 5, 2024
Labour win a 'landslide for #green economy’;
The U.K. North Sea #Oil Industry Is in Decline;
How record-breaking #Hurricane Beryl is a sign of a warming world and more...
🇬🇧🗳️🌹⚡️https://t.co/E068HaVVYa pic.twitter.com/jCvhhyg6G5
Quentin Fitzsimmons, senior fixed income portfolio manager at the US fund manager at T. Rowe Price, has looked at the measures the new Labour government is likely to take.
Tax and spending
The new government is expected to adhere to current fiscal rules, which stipulate that government debt should fall as a percentage of annual GDP in five years. At present, UK debt to GDP is just under 100% of GDP. Fiscal headroom is limited, so it is unlikely the new government will announce major spending increases or tax cuts.
The first budget should come in the autumn, and a prudent approach is expected. Throughout the electoral campaign, Labour emphasised its commitment to fiscal responsibility in a bid to reassure investors it will avoid a repeat of the chaos that engulfed UK government bonds when Liz Truss announced unfunded tax cuts in September 2022. If there are spending shortfalls, the new government is likely to favour raising additional taxes rather than increasing borrowing.
Labour market policies
He thinks the new government is likely to use labour market policies to reduce social inequality and may announce reforms quite soon. These could include raising the minimum wage and linking it to inflation.
However, the government will need to be cautious to ensure it does not exacerbate inflation pressure in the economy. Otherwise, interest rates may need to stay higher for longer.
The new government may also push for changes to zero-hour contracts and give employees greater rights from their first day of work, he said. These measures are designed to provide fairer employment conditions across the board. The UK labour market is currently quite flexible, particularly compared to other European countries. This allows for a much faster adjustment to adverse shocks and a lower unemployment rate.
Housing and planning reforms; relationship with the EU
The new government will likely look to push through housing and planning reforms. If radical enough, it could raise the potential growth rate of the economy. This may be politically costly, but the long-term economic benefits for the UK could be significant. However, it remains to be seen how quickly a major change in planning reform could be implemented.
There is also the status of the UK’s relationship with the EU to consider. Although Labour will not seek to undo Brexit, it may seek closer ties with the EU to ease some of the current trade frictions. As with housing reform, this would take a significant amount of time and would require extensive negotiations. However, if a closer UK-EU relationship is forged, it would probably raise the level of potential GDP and lead to a rebound in investment.
Updated
Crest Nicholson shares jump after rebuffing bid from Avant
Shares in the housebuilder Crest Nicholson jumped as much as 11% this morning after it reportedly rebuffed a bid from rival Avant Homes, which is owned by the US hedge fund Elliott Advisors.
Avant made an all-share proposal to the board of Crest last month, Sky News reported, but was rejected. Elliott would have become the biggest shareholder in the combined group.
Crest shares rose as high as 272.4p and are now trading at 260.2p, valuing the company at nearly £669m.
Avant is run by Jeff Fairburn, the former boss of Persimmon, who was booted out after public outrage over his £75m bonus and the poor quality of the firm’s homes.
Avant’s move comes weeks after Crest rejected a bid from Bellway, another London-listed housebuilder, that valued the business at £650m.
Bellway has until next Thursday to make a formal offer for Crest under UK takeover rules.
EXCLUSIVE: Avant Homes, the housebuilder owned by Elliott Advisors, has tabled an all-share proposal to merge with Crest Nicholson, the London-listed group, that Avant believes would trump an earlier offer from Bellway; the proposal was rejected by Crest. https://t.co/SM4U3JMx0I
— Mark Kleinman (@MarkKleinmanSky) July 5, 2024
Updated
Chris Jowsey, chief executive at Admiral Taverns, which manages about 1,600 pubs, said:
We urge the government to provide an overhaul of the business rates system, introduce beer duty reforms and a cut on employer national insurance to help facilitate the growth of long-term, sustainable pubs that sit at the heart of their communities and support all aspects of local life.
Steve Hare, chief executive at the software company Sage, said:
Many leaders of the UK’s small and medium-sized businesses will welcome a decisive outcome, as businesses need certainty and a stable policy environment to grow and thrive.
Now, to kick-start economic growth, this new Labour Government must take action to support the nation’s small and mid-sized firms.
Michael Topham, chief executive of waste removal giant Biffa, said:
The government has pledged to collaborate with industry to deliver its manifesto commitments, including a renewed industrial strategy, infrastructure proposals, and ‘green’ economic growth.
A stable and clear policy environment with realistic timetables and as much consistency as possible across all devolved nations will be key to allowing the waste sector to invest and innovate.
Labour has sought to position itself as a pro-business party since Keir Starmer became leader in 2020, and has put the economy and business at the centre of its pitch to voters.
In a letter in May, 121 founders, chief executives and former leaders from financial services, retail and manufacturing firms backed Labour’s economic plans.
John Roberts, chief executive of electrical retailer AO World, said the business sector had some “clarity” following Labour’s win and called on the new government to deliver on its “clear mandate”.
He said the Conservatives have been “dysfunctional for some time” and added he was “hopeful” for the country and business sector under a change of government. He told the PA news agency:
There’s a really clear mandate for what is finally an elected leader to go and deliver.
Alex Baldock, chief executive of the electrical retailer Currys, urged Labour to follow through on its manifesto promise to replace business rates and overhaul business taxation.
He said:
Retailers are looking for stability, of course, but also for the government to provide the conditions for growth, through better skills, infrastructure and planning.
Most of all, we must urgently fix the broken, damaging and unfair burden of business rates. We urge the government to consult and act on all of this and, as they do so, we at Currys will engage with them all the way.
Retail, energy, hospitality bosses urge Labour to prioritise economic growth
Bosses across the retail, energy and hospitality sectors have urged the incoming Labour Government to fulfil its pledge of prioritising economic growth after Sir Keir Starmer’s election victory.
Starmer and the Labour Party are preparing to form a government after routing the Conservatives in yesterday’s general election.
Greg Jackson, founder of the UK’s biggest energy provider Octopus, said the result was a “landslide for a green economy”.
Voters have rejected anti-net zero rhetoric and chosen cheaper, cleaner, more secure energy.
Jackson has previously expressed support for Labour’s plan to set up a state-owned energy investment company, GB Energy, which is a central part of Labour’s pitch to decarbonise the UK by 2030.
Jackson told the Guardian:
This is a golden opportunity for a Labour government to deliver bold reforms which can unleash green growth. And the sooner they start, the sooner these changes can bring benefit to the UK. Planning reform is arcane and complex and challenging, but this is the key to kickstarting growth.
Updated
Shell warns of $2bn writedown on biofuel project and refinery
Shell has warned investors that it will take an impairment charge of up to $2bn in its next set of results after it was forced to halt work on Europe’s largest biofuel project and sell off a Singapore refinery.
Shell told investors to expect a non-cash writedown of between $600m and $1bn when it publishes its second-quarter results next month due to trouble at a major biofuel project in Rotterdam in the Netherlands.
The company expects to take a hit of between $600m to $800m on the Singapore refining and chemicals hub that it agreed to sell in May.
The company’s share price slipped from 2,917.50p a share as markets opened to 2,897.50p, broadly in line with its trading levels earlier this week.
Shell said on Tuesday that had “temporarily paused” the construction of a major biofuel plant in Rotterdam in the Netherlands which was expected to convert waste into green jet fuel and biodiesel by the end of the decade.
The oil giant’s biggest energy transition project has struggled with technical difficulties that have delayed its progress so far. It had expected to start producing up to 820,000 tonnes of biofuels a year in April, before this was pushed back to 2025.
Updated
Susannah Streeter, head of money and markets at Hargreaves Lansdown said that given the poll forecasts, the Labour landslide “caused few ripples on financial markets”.
The lack of movement was unsurprising given that the overall result had already been priced in. However, the domestically focused FTSE 250, gained more ground, with a little more confidence swirling about the UK’s prospects.
Nevertheless, with an estimated 34% of the vote, Labour still took the lowest share for a governing party in history, with the Conservatives at 24% and Nigel Farage’s far-right Reform UK party at 14%.
Streeter said:
There may be a honeymoon period for the new administration, but then difficult decisions will have to be taken in office. The size of the victory and the upswell of support for smaller parties and independents will leave Labour MPs concerned about the safety of their seats at the next election. They know they have to deliver for the electorate but are likely to be hampered by a commitment to be fiscally responsible and restrain spending.
The priority will be keeping the markets unruffled in the first days, weeks and months of the new administration and not overdoing spending pledges. There may be some tinkering with the borrowing rules at some point in the future, to distinguish between day-to-day spending and investment, to propel long term growth, potentially loosening the purse further ahead.
So far, this doesn’t seem to have perturbed the debt markets, with bond investors still appearing to be more sensitive to interest rate speculation than the investment plans of an incoming government. 10-year gilt yields barely changed, hovering around 4.2%, down from almost 4.7% last October.
This result comes on the heels of a steady rise for the UK market, retaking its crown as Europe’s most valuable for the first time in nearly two years last month. With political turmoil in France now taking centre stage, the UK looks finally set to enter into a period of financial stability which has the potential to spark renewed investor interest in UK assets.
Updated
FTSE 250 jumps 1.8% to two-year high
While the FTSE 100 rose by 0.3%, the more UK-focused FTSE 250 index is storming ahead after Labour’s election victory, rising 375 points to 20,985, a gain of 1.8% and taking it to its highest level since April 2022.
Victoria Scholar, head of investment at interactive investor, explained:
A Labour government could pave the way for an outperformance of more domestically focused mid-cap stocks if Keir Starmer’s party works to ensure fiscal stability and helps to lift confidence in the UK economy.
Starmer will inherit a significantly improved economy with inflation now back down to the 2% target, retreating from 2022’s 41-year highs and with UK growth back on track again after last year’s short shallow recession. There could also be a further boost to economic confidence next month for Labour if the Bank of England finally decides to start cutting interest rates, potentially paving the way for a notable reduction in mortgage costs over the next year.
Shares across Europe have climbed to more than one-week highs. The pan-European Stoxx 600 index rose 0.4%, boosted by technology stocks (up 0.9%). Germany’s Dax has gained 0.7% while France’s CAC is 0.4% ahead (after closing 0.8% higher yesterday) and Italy’s FTSE MiB increased by 0.5%.
Shares in Aixtron, a German supplier to the semiconductor industry, rallied more than 15% after it reported strong second-quarter orders.
Turning to the pound, which is now trading 0.15% higher against the dollar at $1.2778, Scholar said:
The election outcome alleviates some of the UK’s recent political uncertainty, providing a small uptick for the British currency against the US dollar – it is now the strongest performing currency against the greenback this year.
Meanwhile sterling is also in the green against the euro, reflecting not just the sense of hope around the incoming Labour government but also the uncertainty around France’s political future which has been weighing on the eurozone’s common currency.
Updated
Labour has won the largest landslide since 1997, in line with polling trends in recent weeks. Jefferies economists say that for all the UK’s challenges, “it is arguably better positioned than for years, with cheap valuations, recovering GDP growth and lower policy volatility. We see this political change as a major positive for UK housebuilders”.
Jefferies analysts led by Glynis Johnson said:
For UK housebuilders, it’s less about the variation in macro outcome as a result of who wins, but more that a government led by Labour appears more supportive, engaged & focused on delivery of homes.
The UK Home Builders Federation (HBF) reports it has had a lot of engagement with the Labour Party in the past year, with meetings and updates with the Labour leader, chancellor, deputy leader & secretary of state for housing, housing minister as well as a wide range of prospective parliamentary candidates. HBF reports that across these interactions, the Labour Party message has been consistent—Labour is looking to appear positive for business as a whole, but in particular positive on planning, seeing it as a barrier not just to housing, but a range of drivers of economic growth as a whole.
Sector-specific policy from Labour appears a distinct positive and Labour’s planning ambitions in its manifesto we believe could fuel land release to underpin the next cycle of profits for the UK housebuilders. The lack of credible large-scale demand support in its manifesto doesn’t add additional nitro to this upside. But with valuations only reflecting current very moderate house price inflation, our analysis suggests neither the benefit of rate cuts over summer nor this potential land opportunity is in share prices.
Here is our full story on the markets:
UK housebuilders lead gains on FTSE 100
UK housebuilders are leading gains on the FTSE 100 index, which is now trading 0.4% higher, up 31 points at 8,272.
Persimmon, Vistry Group, Taylor Wimpey and Barratt Developments are among the top risers, rising between 1.7% and 2.5%. The UK housebuilders’ index rose around 2%.
The FTSE 250 index, which is more UK-focused than the FTSE 100, has notched up a 0.8%.
Analysts at Investec said they expect the new government to restore mandatory housebuilding targets, streamline the planning system and increase the amount of social and affordable housing being built.
Housing was a key part of the Labour election manifesto, where they pledged to build 1.5m new homes over the next five years.
Updated
FTSE 100 rises 0.3% at the open
Boom! And we’re off.
The UK’s FTSE 100 rose some 20 points, or 0.3%, to 8,265 at the open -- as expected. The Labour victory had long been priced into financial markets.
In the rest of Europe, France’s CAC rose 0.3% and Germany’s Dax climbed 0.4% in early trading.
Sterling is holding steady, trading slightly higher against the dollar and the euro at $1.2762 and €1.1796.
Government bond prices also rose, pushing the yield (or interest rate) on the 10-year gilt down 3 basis points to 4.17%, broadly in line with other European markets.
Updated
Goldman Sachs raises UK growth forecasts
Goldman Sachs has raised its 2025 and 2026 economic growth forecasts for the UK following Labour’s resounding election victory.
Goldman Sachs strategists led by Sven Jari Stehn said:
Firmer demand is likely to result in marginally higher wage growth and inflation, but the magnitudes involved suggest that the implications for the Bank of England are likely to be limited.
Offshore Energies UK concerned over windfall tax and licences
Here is some reaction from the energy sector. Offshore Energies UK said it was “deeply concerned over Labour proposals to impose a further windfall tax and end new licences”.
David Whitehouse, the chief executive, said:
These policies, if poorly managed, and without industry input will threaten jobs and undermine the decarbonisation of the UK economy. The details matter.
Homegrown offshore energy is a jewel in the UK’s industrial crown that government must treasure.
The Labour party has put economic growth at the heart of its plans, and our offshore energy sector can deliver just that. UK offshore energy companies could invest £200bn in homegrown energy production this decade alone in carbon storage, hydrogen, and wind opportunities alongside the homegrown oil and gas we all need.
Labour leadership has recognised that North Sea oil and gas will be with us for decades to come and committed to managing this strategic national asset in a way that does not jeopardise jobs. The transition is estimated to cost £1.4trillion, the lion’s share of which will need to come from the private sector. Working together, we need to create the conditions to unlock this investment.
He said the industry is looking for a “follow through on assurances to work in partnership with the sector, listen to our skilled people, and ensure no one is left behind in the UK’s energy transition”.
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Housebuilders are expected to benefit from the new Labour government.
Labour has pledged to build 1.5m new homes over the next five years – a promise it insists it will immediately put into motion.
Alice Haine, personal finance analyst at the wealth manager Bestinvest by Evelyn Partners, the wealth manager, said:
With Britons waking up to a new Labour government today, many may wonder whether their landslide victory will inject some momentum into the UK property market. A stable political environment can potentially deliver a confidence boost to the housing market, particularly one that has struggled over the past year with high borrowing costs and a dearth of available and affordable stock. Buying a first home, upsizing and even downsizing are all major personal finance decisions, which is why confidence in how your country is run is vitally important.
Interest rates have remained at a 16-year high of 5.25% for almost a year causing major affordability challenges for first-time buyers and those looking to move to larger homes. While the combination of lower inflation and strong wage growth has offered a slight boost to housing affordability, for many the dream of home ownership is still out of reach. Throw in interest rate cuts, however, with the first reduction expected as early as next month on August 1, and, in turn, more competitive mortgage rates and the market could experience a surge in demand.
Several major mortgage lenders have already begun trimming their headline deals and while a UK rate reduction would improve mortgage rates for new borrowers and those on trackers, it won’t ease the concerns for those locked into fixed rate deals with some time left to run. Those on long-term fixes taken out before or during the early stages of the Bank of England’s rate-hiking cycle will still face higher repayments when they eventually come to refinance, Haine said.
Labour will be keen to encourage more first-time buyers to get a foot on the UK’s housing ladder, something that has become a major challenge for many young, and not so young, buyers in recent years who have struggled to find affordable homes in many parts of the country.
Boosting housebuilding, along with a proposed planning overhaul, reclassification of green belt land and a new mortgage guarantee scheme are all ways that can lure more first-time buyers into the market and improve the supply and demand imbalance. These proposals can take time, however, though some buyers may be happy to wait for the election dust to settle before they plough into the market.
UK house prices dip in 'subdued market' – Halifax
UK house prices dipped in June in a “subdued market,” according to the mortgage lender Halifax.
Its monthly house price index showed the average price of a home slipped by 0.2% in June from May, by less than £500 in cash terms, leaving the annual growth rate at 1.6%. A typical home in the UK now costs £288,455, compared to £288,931 in May.
House prices stayed relatively flat for a third successive month in June, while Northern Ireland recorded the strongest annual growth in the UK, at 4%, up from 3.3%. The average price of a property there is now £192,457.
Amanda Bryden, head of mortgages at Halifax, said:
This continued stability in house prices – rising by just +0.4% so far this year – reflects a market that remains subdued, though overall activity has been recovering. For now it’s the shortage of available properties, rather than demand from buyers, that continues to underpin higher prices.
Mortgage affordability is still the biggest challenge facing both homebuyers and those coming to the end of fixed-term deals. This issue is likely to be eased gradually, through a combination of lower interest rates, rising incomes, and more restrained growth in house prices.
While in the short-term the housing market is delicately balanced and sensitive to the pace of change to Base Rate, based on our current expectations property prices are likely to rise modestly through the rest of this year and into 2025.
In England, the steepest rate of house price inflation is found in the north west, up by 3.8% over the last year, to an average property price of £231,351.
House prices in Scotland also increased, with a typical property now costing £204,663, 1.6% more than the year before. In Wales, house prices grew annually by 2.7% to reach £220,197.
Eastern England was the only region or nation across the UK to register a decline in house prices over the last year, where they now average £328,747, down 0.9% in June on an annual basis.
London continues to have the most expensive prices in the UK, now averaging £536,306, up 0.9% year on year.
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Sterling has edged up nearly 0.1% to $1.2769 while stock markets open in about an hour, with the FTSE 100 index expected to make modest gains.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:
With the general election behind us - and more political uncertainty and hopefully less scandals ahead - the Labour win is seen as being net positive for the pound and the British stocks. Cable fell from near $1.50 pre-Brexit to almost parity at the peak of the Tory disillusion with Liz Truss mini budget crisis, the changing government gives hope that at least a part of the weakness could be recovered.
For stocks, the small and medium sized stocks are expected to perform stronger than the FTSE 100 – which is more exposed to the global economic dynamics due to its high concentration of energy and mining stocks. But both should see the benefits of the upcoming rate cut from the Bank of England – and additionally the other major central banks into the year end.
Turning to France, which holds its second election round on Sunday, she said:
In France, the situation looks better from a market perspective, as well. The latest polls suggest that Marine Le Pen’s National Rally could fall ‘well short’ of a majority at this weekend’s second and final tour of legislative elections. The party is forecasted to win between 190 to 250 seats out of 577, which will leave it significantly below the 289 majority needed to pass bills easily.
As such, the French will probably not see their taxes lowered as promised by Le Pen and investors will hopefully not see the French debt levels explode irresponsibly following this chaotic ‘snap election’ parentheses.
Investors are now in a hurry to return to French assets and the euro at discounted prices not to miss the post-election rally next Monday. The spread between the German and French 10-year yield fell below 70 from last week’s peak of 86.
The CAC 40 rose by 0.8% to 7,695 yesterday, extending the rally seen in recent days, but Ozkardeskaya noted that the French index
remains well below the 8,000 mark where it was trading when Macron announced the snap election. It will probably shrug off the election fear with a further recovery but in the medium run, a hung government will prevent the French from moving forward with any reforms: that’s positive when you think of unsustainable tax cuts but that’s not necessarily positive for the long term growth as other reforms will also be blocked.
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JPMorgan’s UK Economist Allan Monks said little is known about the details of Labour’s approach to fiscal policy, and this is unlikely to change immediately following the election result.
The party is communicating that there will be no major tax rises, no significant spending cuts and no slippage from the current fiscal rules, all while boosting trend growth. Absent good luck, it will be difficult to achieve all these commitments over the next parliament, in our view.
From a strategy perspective, Mislav Matejka, the bank’s head of global and European equity strategy, rates the UK equity market overweight, with a preference for the FTSE-250 over FTSE-100, and sees a Labour win as positive for banks and homebuilders, mixed for utilities and general retail and less positive for transport and energy sectors.
Make UK: 'Business will welcome such a clear result'
Stephen Phipson, chief executive of Make UK, said:
Business will welcome such a clear result and an end to the political and economic instability of the last few years which is essential for companies to now bring forward much needed investment.
Looking ahead, the new government has a lot in its in-tray to address. First and foremost is the urgent need to kick start the UK’s anaemic growth levels of recent years and, boost investment in our infrastructure, without which we cannot address the many urgent priorities the country faces at national and regional level.
A modern, long-term industrial strategy which tackles the skills crisis in particular will be key to delivering this growth. Manufacturers stand ready to work with the new government and all stakeholders as a matter of urgency to help deliver this.
Analysts: 'Some upside to GDP, inflation and rates forecasts'
Paul Dales, chief UK economist at Capital Economics, said the new government’s policies mean economic growth could be higher.
The big shift in the political landscape that has delivered the first Labour government since May 2010 is unlikely to lead to anything like as big a shift in the economic landscape.
But at the margin, the policies of the new Labour government generate some upsides to our GDP, inflation and interest rate forecasts. The stability of the pound overnight is no surprise as a Labour win was already priced into the markets.
“The economy may give Labour a helping hand,” he said. He explained:
Labour is taking over just as inflation has fallen back to the 2% target and the Bank of England is on the cusp of cutting interest rates from 5.25%. Our forecasts that inflation will fall a bit further and the Bank will cut rates to 3% next year explains why we think GDP growth will accelerate, to 1.2% this year and to 1.5% in both 2025 and 2026.
Moreover, our current estimate is that at the first fiscal event after the election (probably in September), the Office for Budget Responsibility will grant Labour fiscal headroom of around £16bn (0.6% of GDP), up from £8.9bn (0.3%) in the March budget.
That may mean Labour can raise spending a bit further than planned without raising taxes or borrowing by more than planned. Looser fiscal policy, though, may just mean inflation is a little higher and interest rates don’t fall as far.
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“What a difference five years makes, Labour have turned themselves around” and are on course for a decisive victory, Kathleen Brooks, research director at the currency broker XTB, said.
Since the result is broadly as expected, the pound has had a muted reaction to [the] news. Due to this, the focus will now shift to what the future holds. Sir Keir Starmer still needs to lay out in more detail his plans for spending and taxation, and, most importantly, how he will grow the economy.
The financial markets trust that the UK’s fiscal position is secure with Labour, hence why bond yields and the pound have remained stable during this election campaign. The focus now will quickly shift to Starmer’s first 100 days in office, and how he lays out his economic plans to boost growth at the same time as improving public services.
Investors will be watching to ensure that Keir Starmer maintains his ‘stability’ message and fiscal prudence, otherwise he could find that the bond vigilantes are never far away. Ultimately, it’s the bond market that will determine Labour’s fiscal policies.
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Sterling best-performing currency against dollar this year; investors say 'boring is good'
Sterling has firmed slightly this morning. It has risen since Rishi Sunak called the election in late May, and is the strongest-performing major currency against the dollar this year, with a gain of 1.2%.
Laura Foll, portfolio manager at Janus Henderson Investors, said:
It’s a breath of fresh air to be running [UK] equities in a market where the election is seen as a non-event.
I’m hoping we’re going back to an era where boring is good and politics treads lighter in people’s lives. It will be a more gradual lifting [of confidence].
Government borrowing costs were little changed, with the yield (or interest rate) on the 10-year gilt rising by 6 basis points.
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Introduction: Pound holds steady as business calls for ‘fresh start’ under Labour
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
We’ve woken up to a landslide Labour victory in the UK.
Keir Starmer has pledged that it is “now time for us to deliver” as his party’s election victory brings an end to 14 years of Conservative rule. The Labour leader is expected to become prime minister later today.
Rishi Sunak’s party is on track to record its worst ever performance in a general election.
As the results are broadly as expected and already priced into financial markets, the pound held steady. It has firmed slightly against the dollar, by 0.1% at $1.2770, and was up a smidgen against the euro at €1.18.
Stock market futures are pointing to a higher open on the FTSE 100 index in a couple of hours.
The London Chamber of Commerce said the business community looks forward to a “fresh start” under Labour.
Chief executive Karim Fatehi said:
We look forward to working with government over the coming years to build a London where businesses of all sizes thrive.
Now is the time for the new government to quickly make the changes businesses need to succeed. As laid out in our manifesto this includes the introduction of policies that protect and support the capital’s businesses, enhance London’s international competitiveness, and simplify and enable infrastructure and planning. These policies will lay the foundations for future growth, address long term skills shortages, and foster greater innovation in our capital.
The CBI business group said “business stands ready to bring its innovation, ideas, and investment to make that shared mission a reality”.
Rain Newton-Smith, CBI’s chief executive, said:
The new prime minister has been given a clear mandate to take the tough decisions on areas like planning reform and boosting grid capacity needed to get the economy firing on all cylinders. What firms need now is a government that’s ready to hit the ground running and is laser-focused on delivery.
Households and businesses across the UK have shown incredible resilience through Brexit, Covid and war in Europe. With the economy picking up steam, now is the moment to get behind growth. Setting out a positive vision for the UK economy and leaning into our international leadership should be top priorities for the first 100 days.
The TUC said Labour has a “historic opportunity” to “repair and rebuild Britain”.
The union’s general secretary Paul Nowak said:
The trade union movement stands ready to work with this new government to deliver the change working families desperately need.
This means tackling the scourge of insecure work and boosting living standards. It means fixing our crumbling public services. And it means reversing over a decade of Tory stagnation with a proper plan for growth and industrial revival.
And this is the country following 14 years of Conservative rule:
The Agenda
7am BST: Halifax house price index for June
7am BST: German industrial production for May
7.45am BST: France trade and industrial production for May
10m BST: Eurozone retail sales for May
1.30pm BST: US non-farm payrolls for June (forecast: +190,000), unemployment rate (forecast: unchanged at 4%)
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