Wall Street giant JP Morgan is forecasting a “net positive” impact on markets if Labour wins the UK general election on 4 July.
JP Morgan analysts said in an Equity Strategy note on Monday that a Labour victory would be particularly positive for the banking, homebuilding and food retail sectors.
“The current Labour party is occupying a centrist platform, and the perception of policy paralysis is set to move behind us,” they added.
“[The] 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. Labour have also sought to reassure businesses by ruling out corporation tax increases.”
The banking sector would benefit from “political and policy stability… particularly absent any risks around corporation tax/banking surcharge”, while “affordable housing, unlocking land for development and reforming the planning system” are set to be core themes of the election, JP Morgan said.
Food retail is expected to benefit from Labour’s support for policies like incentivising private sector investment and a continued focus on the cost of living crisis.
Meanwhile, JP Morgan said transportation and energy would likely “trade negatively” as a result of Labour’s policies. Analysts said the nationalisation of the railways “would weigh on” the transportation sector, while Labour’s plan to increase and extend the Energy Profits Levy would impact energy.
They added that the utility sector is likely to benefit from the increased spending in “clean” technologies as Labour works towards its net-zero target, although water firms could be at risk of increased regulation.
JP Morgan noted that since 1970, the UK stock market has gained by an average of one per cent in the month after a Conservative election win, but fallen by two per cent in the month after a Labour victory.
“However, we think that this time, a Labour win will likely be seen as a positive for the UK markets,” analysts said. “The current Labour party has a much more centrist policy agenda.”
JP Morgan said it favoured the mid-cap FTSE 250 share index, which is more reflective of the health of the UK economy, over the blue-chip FTSE 100, which is more internationally weighted.
Separately, a Bloomberg poll published on Monday found that a Labour victory would be the best election outcome for the pound.