If these predictions are confirmed and the Labour Party comes to power after 14 years of Conservative rule, analysts expect the new British administration to avoid making drastic political decisions in the short term. This reduces the risks associated with the elections.
He The United Kingdom votes this Thursdaywith all polls indicating a clear victory for the Labour Party. This predictability keeps the markets calm, but Federated Hermes analysts anticipate “ a surge in sentiment“, which could strengthen the pound.
Orla Garveysenior fixed-income portfolio manager at Federated Hermes, highlights that the British elections “are unlikely to generate volatility in fixed-income marketsGarvey explains that the UK already has a considerable political risk premium after the “mini-budget” and that, in general, the markets will view the election positively if the polls predicting a landslide victory for Labour are confirmed.
If these forecasts are confirmed, Garvey hopes the new British government will avoid making drastic political decisions in the short termhaving learned from past mistakes, which reduces the risks associated with elections.
UK elections: what the markets are looking at
Louise Dudley, global equity portfolio manager at Federated Hermes, adds that with the election result virtually decided, the focus is on the scale of the victory. A landslide victory will allow for a clear agenda of change, benefiting key sectors such as housing, energy, transport and financial services.
The greening of these sectors will offer huge opportunities for investors, and supporting electric vehicle infrastructure and domestic battery manufacturing will make the UK a more attractive destination for green transport.
march united kingdom early elections
Courtesy: BBC
Dudley also notes that the timing of interest rate cuts will be crucial to maintaining modest and fragile positive growth. Overall, political risk is expected to decline in the face of stability, which is positive for British equities. Furthermore, strengthening ties with the EU could be a positive factor for small businesses, which have struggled with additional regulatory bureaucracy since Brexit.
On the other hand, analysts at TD Securities anticipate “a limited reaction” in financial markets to a Labour majority, whether weak or strong, and believe that the country’s new government will begin its term with signs of political and fiscal stability. They add that a strong Labour victory would have positive implications for the pound sterlingas its value will increase as relations with the EU, trade policies and geopolitical stances improve.
Although TD Securities analysts remain bullish on the dollar in the second half, they believe the pound will outperform the euro.
Source: Ambito
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