The polls were right – on Friday 5^th July the UK woke up to a new Government. The Labour party secured a landslide victory.  

A decisive Labour party victory 

Nevertheless, the Labour party’s dominance at the ballot box does not usher in any profound change in the direction for the UK’s finances nor its economic trajectory. The extent to which any expansionary public spending is possible is limited by the UK’s net debt rule – meaningful surprises on fiscal policy are unlikely. Our economic projections forecast modest improvements in economic growth, following the technical recession at the end of last year.  

The immediate market reaction was positive on the margin. In overnight trading sterling (traditionally the best gauge of market sentiment on politics) was 0.15% stronger against the US Dollar and flat against the Euro, which would have been muted due to the 4th July holiday in the US. The 10 year gilt yield fell by two basis points and FTSE-100 futures rose by 0.4% on the London open.  

The Bank of England will continue to conduct monetary policy independently. The election result will have little bearing upon their decision making. Whilst headline inflation fell to match the Bank’s 2% target last month, we continue to expect the Bank to move cautiously. Services CPI, a key point of focus for the Bank, remains elevated and sticky. We do however expect underlying inflationary pressures to ease gradually through the year and for the Bank to start cutting rates in August. 

What does the result mean for UK corporate activity?

We anticipate increased Merger & Acquisition (M&A) activity as investors and boardrooms gain a bit more certainty now that the election is behind us. However, geopolitical and macro-political risks are likely to continue to introduce elements of uncertainty. 

Trustees should be prepared for both M&A and restructuring scenarios. By maintaining a thorough understanding of market dynamics, covenant implications, and strategic engagement practices, trustees can effectively manage their responsibilities and maximise desired outcomes for members.