Market Update
July 5, 2024

UK Election: Insights and Implications

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The recent UK election brought a substantial victory for the Labour party, securing a majority of 85 seats in Parliament, with only 4 seats yet to be decided. Here Chief Investment Strategist at Skybound Capital, Jabir Sardharwalla shares some key insights:

How Labour Won

The victory wasn’t solely due to Labour’s strength but rather the weaknesses of other parties. Here’s a breakdown:

Tory Decline

The Conservative party, led by Boris Johnson, initially held a strong lead, which eroded following the Downing Street parties’ scandal and Liz Truss’s controversial policies. Under Rishi Sunak, the party focused on damage control rather than innovative strategies, leading to Labour’s dominance.

Scotland's Shift

The SNP lost 38 seats, with Labour gaining 36 of these. Scandals within the SNP shifted the political landscape dramatically.

Reform Party Impact

The Reform party’s rise, gaining 12.3% of the national vote, significantly hurt the Conservatives. This split in the vote allowed Labour to win crucial seats by narrow margins.

Liberal Democrats

With only a 0.6% increase, they remained a minor player, often seen as a choice for the indecisive.

Wales

Labour gained 9 seats in Wales, further expanding their influence.

Greens

The Greens gained 3 seats, supported largely by younger voters.

Economic Implications of Labour’s Victory

The immediate market response has been mild, with the GBP slightly up against the USD and Euro. The UK 10-year Gilts have also risen. Labour’s policies, though largely cosmetic, aim to address long-standing economic issues without drastic changes. Key points include:

Tax Policies

No increase in income or corporation taxes, but VAT will be applied to private school fees, and non-domiciled residents will be taxed on overseas income.

Public Services and Infrastructure

Promises to improve public services and infrastructure through planning system reforms and devolving powers to local authorities.

Green Initiatives

Ambitious plans to decarbonize the power system by 2030, create a state energy firm, and invest in clean energy industries, potentially generating 650,000 jobs.

EU Relations

Plans to improve relations with the EU without rejoining the Single Market or Customs Union.

Labour Laws

Repealing restrictions on trade unions and promoting flexible working arrangements, with a promise to consult employers on these changes.

Labour’s approach has been cautious, avoiding major missteps and allowing their opponents to falter. The real challenge lies ahead, with limited financial flexibility requiring innovative solutions to stimulate economic growth and public confidence.

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