A Labour election victory will be a “net positive” for financial markets, strategists at the US bank JP Morgan have said, in an analysis that underlines the appeal of Keir Starmer’s “centrist platform” to the City of London.
A majority for Labour would benefit banks, builders and supermarkets, analysts led by JP Morgan’s head of global equity strategy, Mislav Matejka, wrote in a note to clients published on Monday. The US investment bank said Labour’s policies would be “modestly pro-growth, but crucially with a likely cautious fiscal approach”.
Analysts at MUFG, a Japanese investment bank, separately said that a landslide victory for Labour would be “most positive for the pound” because it would end political instability, raise expectations of higher government spending, and potentially help usher in a more constructive relationship between the UK and EU after Brexit.
Starmer is firm favourite to become the next UK prime minister, according to polls. Labour’s turnaround since the 2019 general election has been marked – including in the ousting of former leader Jeremy Corbyn and the watering down of previous spending commitments. It has also included a concerted, years-long “smoked salmon offensive” by Labour to try to charm big business.
“We believe the market impact will be net positive,” they wrote. “The current Labour party is occupying a centrist platform, and the perception of policy paralysis is set to move behind us.
“Labour agenda is modestly pro-growth, but crucially with a likely cautious fiscal approach. Our economists believe that, given the lack of fiscal space, Labour will likely focus on supply-side reforms to help improve economic growth.”
More than half of the 268 respondents to a Bloomberg News poll published on Monday of readers and users of its financial markets terminal said a Labour win would be the best result for the pound.
Derek Halpenny and Lee Hardman at MUFG wrote last week that Labour’s spending plans were “unlikely to fuel investor concerns”. They wrote that the party is likely to learn the lesson of the Conservative party under Liz Truss, whose premiership rapidly spiralled into chaos after financial markets took fright at unfunded tax cuts. The pound fell under Truss to its lowest ever level against the US at $1.0327, compared with $1.27 on Monday.