Market Stability Following Labour’s Victory

The UK financial markets have shown remarkable stability following Labour’s landslide victory in the snap election called by Rishi Sunak. Labour’s win has bolstered investor confidence, with UK stocks, bonds, and sterling all seeing gains.

Since late May, the pound has been the only G10 currency to appreciate against the dollar, highlighting the UK’s appeal in a turbulent global economic climate.

Investors view Labour’s win as a turning point, marking the end of a period of instability under Conservative leadership. This political stability is seen as a positive signal for UK assets, especially as other major economies face political uncertainties.

The substantial majority achieved by Labour suggests the potential for a two-term government, which could lead to consistent and long-term policy implementation, including crucial planning reforms that could boost the UK economy.

UK’s Comparative Attractiveness
The UK’s calm financial environment contrasts sharply with the situation in France, where political turmoil has unnerved investors. The rise of the far right and President Emmanuel Macron’s unexpected decision to call an election have led to significant declines in French markets, with the Cac 40 stock index dropping nearly 4%. The yield premium on French debt over Germany has surged, reminiscent of the Eurozone debt crisis.

In the UK, the Labour government’s cautious borrowing plans are expected to attract foreign investors to gilts. The stability of UK gilts is further highlighted by the recent fluctuations in the US Treasury market, influenced by political developments and economic policy proposals under the potential second Donald Trump presidency.

The UK’s transformation in the mind of investors can be most clearly seen in the pound. The currency has been the best performer across the Group-of-10 this year and a gauge of expected price swings on sterling over the coming month fell to 5.76% last week, its lowest since May.

Challenges and Future Outlook
Despite the newfound stability, Labour faces significant challenges in delivering on its promises amid tight borrowing constraints and modest economic growth forecasts. Rachel Reeves, the incoming chancellor, has committed to maintaining debt reduction targets, limiting the scope for increased borrowing.

To address these challenges, Labour will need to focus on supply-side reforms aimed at stimulating investment, improving productivity and international trade. A softer approach towards the European Union might marginally enhance growth and trade prospects, though the extent of EU cooperation remains uncertain.

The relative calm in UK markets provides a contrast to the turmoil seen elsewhere, positioning the UK as a potential safe haven for investors seeking stability in a volatile global economic landscape.

How does this affect your logistics planning?

• FX is stable – always a good thing to ensure predictability with currency exchange. Remember the Liz Truss impact a few years back – very painful
• Probably closer and more desirable trading terms with the EU. Which has already been stated by the new government as an objective
• Possibly better trade deals with other countries around the world, created through an energised and proactive approach by the government
• More investment in UK infrastructure and logistics related routes to market, including the rail and energy markets

These are just a few of the potential benefits, but reality is, time will tell. One thing you can rely on is that as the evolution occurs Metro will be at the forefront of the market ensuring that you gain benefit with your own business strategy and global trading opportunities. We will adapt, as we always do.

We are constantly monitoring and sharing the latest news on market influences, including currency FX and macro-economic performances, which can impact our customers supply chains.

We follow the barometers of global trade and money markets and are happy to share knowledge, to help you de-risk currency fluctuations and achieve the best returns.

For advice and recommendations please EMAIL Laurence Burford, our Chief Financial Officer.