First thoughts on the UK election

The UK political landscape has just shifted decisively (if unsurprisingly), but the economic landscape hasn't.

The new Labour government's huge majority has long been predicted by the polls, and should be more than adequate for it to govern effectively through the next parliament. A peaceful and decisive election is a good thing, whatever your personal affiliation.

Turnout was low, admittedly, at 60% (67% in 2019), and the English populists (Reform) polled 14% from a near standing start, putting them third. Labour's vote share, at around 34% (full details are not yet in), was up only up slightly from 2019, but the Conservative share almost halved, to around 24%. The gap between the two big parties was just half what the opinion polls had suggested, and this was not a wave of enthusiasm but rather a massive ‘good riddance’.

In terms of parliamentary seats, the biggest surprise perhaps was the Liberal Democrats' tally, which rose from eight seats to 71 (putting them third in terms of seats, with just over a tenth of the total): Reform's bigger but more evenly-distributed share of the vote translated into just four seats out of 650, and served mostly to ensure Labour seat gains (thanks to the ‘first past the post’ electoral system). Meanwhile, the Scottish populists have all but disappeared as a parliamentary force: if anything the Kingdom looks more United than it did.

The details of Labour's economic policies have yet to be decided, let alone announced, but the big picture is (we think) reasonably clear. Prime Minister Starmer may be seeking faster growth, but he is not about to change macro policy frameworks – fiscal or monetary – as he does so. We take his declared centrism in this respect at face value: it is clearly the reason he is in office, and to retreat from it would be extremely difficult even if he wanted to do so. While it's certainly good to see the optimism about growth, and we are firmly in the glass-half-full camp ourselves, until effective micro, supply-side measures are decided, designed and implemented it can't be taken for granted. Some changes – towards a less flexible labour market – will likely work against it. Hence our suggestion above that the UK's economic prospects are not suddenly altered. Those prospects are often less important anyway than the global outlook in driving UK stock market indices and interest rates.

Of course, even a centrist Labour government will not be as pro-business or libertarian as a Conservative one, and we should anticipate many changes in the detail of tax and sectoral policies in the weeks ahead, some of which will be contentious. But overall, the financial markets' initial judgement on the widely-predicted change in government – the pound, gilts and FTSE are little moved – seems to match ours.

As we have said so often in recent years, the things which matter to us as people and citizens do not always matter so much in the narrower investment context – just as the things which do move financial markets may not always matter politically.

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Past performance is not a guide to future performance and nothing in this article constitutes advice. Although the information and data herein are obtained from sources believed to be reliable, no representation or warranty, expressed or implied, is or will be made and, save in the case of fraud, no responsibility or liability is or will be accepted by Rothschild & Co Wealth Management UK Limited as to or in relation to the fairness, accuracy or completeness of this document or the information forming the basis of this document or for any reliance placed on this document by any person whatsoever. In particular, no representation or warranty is given as to the achievement or reasonableness of any future projections, targets, estimates or forecasts contained in this document. Furthermore, all opinions and data used in this document are subject to change without prior notice.

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