The pound held steady after exit polls showed Keir Starmer’s Labour on track for a landslide election victory, as investors bet that a decisive win would bring stability to Britain after years of political and economic uncertainty.
Since Rishi Sunak called the snap general election in the pouring rain outside Downing Street six weeks ago, financial markets have widely expected Labour to win a crushing victory. Opinion polls have shown the party heading for one of the largest majorities in modern political history.
Anything other than a resounding Labour victory would have been a major shock after predictions among City traders for a night of relative calm on the currency markets, with dealing rooms across the Square Mile focused not on whether the party would win but on the scale of Starmer’s landslide.
Ahead of official results expected in the early hours of Friday morning, the exit poll suggested Labour was on course to win a majority of 170.
Starmer’s expected majority is likely to solidify financial market expectations for a period of stability in British politics after years of turmoil under the Conservatives since the 2016 Brexit vote, when the shock leave outcome triggered a crash in the pound.
After four prime ministers in five years, sterling has recovered from a record low of $1.03 in 2022, when Liz Truss’s mini budget triggered a meltdown in financial markets that required the Bank of England to intervene to prevent pension funds from going bust. The pound had been one of the strongest-performing currencies across major economies in recent weeks in anticipation of the result.
The pound remained steady after the publication of exit polls on Thursday, with sterling trading unchanged on levels earlier in the day at about $1.27.
Labour under Starmer has also shifted to the economic centre ground, aiming to distance the party from the more radical policies of Jeremy Corbyn after the former leader suffered a heavy defeat to Boris Johnson’s Tories in 2019.
Analysts said a Labour majority below triple digits could have drawn a reaction in financial markets. Traders were also focused on whether Nigel Farage’s Reform party might win a sizeable number of seats, as a potential indicator of future political pressures on Starmer over the EU and immigration. The exit poll predicted that Reform would win 13 seats.
Starmer has sought to maintain a cautious approach to economic policy after Labour’s 2019 defeat, when Corbyn promised a far-reaching transformation of the economy, and after Truss’s ill-fated economic experiment.
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UK government borrowing costs have remained steady on international markets in the run-up to Thursday’s poll, in contrast with a sharp rise in French bond yields over uncertainty around the outcome of the snap elections called by Emmanuel Macron.
Investors said uncertainty about the outcome of the US presidential election in November had also bolstered appetite for UK assets, and there was talk of the country becoming a relative safe haven for investors in an increasingly volatile world.
Chris Beauchamp, chief market analyst at the online trading platform IG, said: “The exit poll has provoked little volatility in FX markets, as the expected Labour landslide is duly predicted. The stability that would be provided by such a win would mean investors can cross ‘UK political risk’ off their list of worries for the time being. The focus now shifts across the Channel to France, where Sunday night’s election could have bigger ramifications.”