Monday, September 16, 2024

UK stocks, sterling, bond prices rise as business calls for ‘fresh start’ under Labour – business live

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UK housebuilders lead gains on FTSE 100

UK housebuilders are leading gains on the FTSE 100 index, which is now trading 0.4% higher, up 31 points at 8,272.

Persimmon, Vistry Group, Taylor Wimpey and Barratt Developments are among the top risers, rising between 1.7% and 2.5%.

The FTSE 250 index, which is more UK-focused than the FTSE 100, has notched up a 0.8%.

Analysts at Investec said they expect the new government to restore mandatory housebuilding targets, streamline the planning system and increase the amount of social and affordable housing being built.

Housing was a key part of the Labour election manifesto, where they pledged to build 1.5m new homes over the next five years.

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FTSE 100 rises 0.3% at the open

Boom! And we’re off.

The UK’s FTSE 100 rose some 20 points, or 0.3%, to 8,265 at the open — as expected. The Labour victory had long been priced into financial markets.

In the rest of Europe, France’s CAC rose 0.3% and Germany’s Dax climbed 0.4% in early trading.

Sterling is holding steady, trading slightly higher against the dollar and the euro at $1.2762 and €1.1796.

Government bond prices also rose, pushing the yield (or interest rate) on the 10-year gilt down 3 basis points to 4.17%, broadly in line with other European markets.

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Goldman Sachs raises UK growth forecasts

Goldman Sachs has raised its 2025 and 2026 economic growth forecasts for the UK following Labour’s resounding election victory.

Goldman Sachs strategists led by Sven Jari Stehn said:

Firmer demand is likely to result in marginally higher wage growth and inflation, but the magnitudes involved suggest that the implications for the Bank of England are likely to be limited.

Offshore Energies UK concerned over potential windfall tax

Here is some reaction from the energy sector. Offshore Energies UK said it was “deeply concerned over Labour proposals to impose a further windfall tax and end new licences”.

David Whitehouse, the chief executive, said:

These policies, if poorly managed, and without industry input will threaten jobs and undermine the decarbonisation of the UK economy. The details matter.

Homegrown offshore energy is a jewel in the UK’s industrial crown that government must treasure.

The Labour party has put economic growth at the heart of its plans, and our offshore energy sector can deliver just that. UK offshore energy companies could invest £200bn in homegrown energy production this decade alone in carbon storage, hydrogen, and wind opportunities alongside the homegrown oil and gas we all need.

Labour leadership has recognised that North Sea oil and gas will be with us for decades to come and committed to managing this strategic national asset in a way that does not jeopardise jobs. The transition is estimated to cost £1.4trillion, the lion’s share of which will need to come from the private sector. Working together, we need to create the conditions to unlock this investment.

An oil platform in the Cromarty Firth near Invergordon in the Highlands of Scotland. Nearly 200 businesses have signed up to a union’s campaign against Labour’s policy of refusing to grant new oil and gas licences in the North Sea. Photograph: Andrew Milligan/PA

He said the industry is looking for a “follow through on assurances to work in partnership with the sector, listen to our skilled people, and ensure no one is left behind in the UK’s energy transition”.

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Housebuilders are expected to benefit from the new Labour government.

Labour has pledged to build 1.5m new homes over the next five years – a promise it insists it will immediately put into motion.

Alice Haine, personal finance analyst at the wealth manager Bestinvest by Evelyn Partners, the wealth manager, said:

With Britons waking up to a new Labour government today, many may wonder whether their landslide victory will inject some momentum into the UK property market. A stable political environment can potentially deliver a confidence boost to the housing market, particularly one that has struggled over the past year with high borrowing costs and a dearth of available and affordable stock. Buying a first home, upsizing and even downsizing are all major personal finance decisions, which is why confidence in how your country is run is vitally important.

Interest rates have remained at a 16-year high of 5.25% for almost a year causing major affordability challenges for first-time buyers and those looking to move to larger homes. While the combination of lower inflation and strong wage growth has offered a slight boost to housing affordability, for many the dream of home ownership is still out of reach. Throw in interest rate cuts, however, with the first reduction expected as early as next month on August 1, and, in turn, more competitive mortgage rates and the market could experience a surge in demand.

Several major mortgage lenders have already begun trimming their headline deals and while a UK rate reduction would improve mortgage rates for new borrowers and those on trackers, it won’t ease the concerns for those locked into fixed rate deals with some time left to run. Those on long-term fixes taken out before or during the early stages of the Bank of England’s rate-hiking cycle will still face higher repayments when they eventually come to refinance, Haine said.

Labour will be keen to encourage more first-time buyers to get a foot on the UK’s housing ladder, something that has become a major challenge for many young, and not so young, buyers in recent years who have struggled to find affordable homes in many parts of the country.

Boosting housebuilding, along with a proposed planning overhaul, reclassification of green belt land and a new mortgage guarantee scheme are all ways that can lure more first-time buyers into the market and improve the supply and demand imbalance. These proposals can take time, however, though some buyers may be happy to wait for the election dust to settle before they plough into the market.

UK house prices dip in ‘subdued market’ – Halifax

UK house prices dipped in June in a “subdued market,” according to the mortgage lender Halifax.

Its monthly house price index showed the average price of a home slipped by 0.2% in June from May, by less than £500 in cash terms, leaving the annual growth rate at 1.6%. A typical home in the UK now costs £288,455, compared to £288,931 in May.

House prices stayed relatively flat for a third successive month in June, while Northern Ireland recorded the strongest annual growth in the UK, at 4%, up from 3.3%. The average price of a property there is now £192,457.

Amanda Bryden, head of mortgages at Halifax, said:

This continued stability in house prices – rising by just +0.4% so far this year – reflects a market that remains subdued, though overall activity has been recovering. For now it’s the shortage of available properties, rather than demand from buyers, that continues to underpin higher prices.

Mortgage affordability is still the biggest challenge facing both homebuyers and those coming to the end of fixed-term deals. This issue is likely to be eased gradually, through a combination of lower interest rates, rising incomes, and more restrained growth in house prices.

While in the short-term the housing market is delicately balanced and sensitive to the pace of change to Base Rate, based on our current expectations property prices are likely to rise modestly through the rest of this year and into 2025.

Coastal village of Aberdaron, Lleyn Peninsula, in Wales. Photograph: Realimage/Alamy

In England, the steepest rate of house price inflation is found in the north west, up by 3.8% over the last year, to an average property price of £231,351.

House prices in Scotland also increased, with a typical property now costing £204,663, 1.6% more than the year before. In Wales, house prices grew annually by 2.7% to reach £220,197.

Eastern England was the only region or nation across the UK to register a decline in house prices over the last year, where they now average £328,747, down 0.9% in June on an annual basis.

London continues to have the most expensive prices in the UK, now averaging £536,306, up 0.9% year on year.

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Sterling has edged up nearly 0.1% to $1.2769 while stock markets open in about an hour, with the FTSE 100 index expected to make modest gains.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:

With the general election behind us – and more political uncertainty and hopefully less scandals ahead – the Labour win is seen as being net positive for the pound and the British stocks. Cable fell from near $1.50 pre-Brexit to almost parity at the peak of the Tory disillusion with Liz Truss mini budget crisis, the changing government gives hope that at least a part of the weakness could be recovered.

For stocks, the small and medium sized stocks are expected to perform stronger than the FTSE 100 – which is more exposed to the global economic dynamics due to its high concentration of energy and mining stocks. But both should see the benefits of the upcoming rate cut from the Bank of England – and additionally the other major central banks into the year end.

Turning to France, which holds its second election round on Sunday, she said:

In France, the situation looks better from a market perspective, as well. The latest polls suggest that Marine Le Pen’s National Rally could fall ‘well short’ of a majority at this weekend’s second and final tour of legislative elections. The party is forecasted to win between 190 to 250 seats out of 577, which will leave it significantly below the 289 majority needed to pass bills easily.

As such, the French will probably not see their taxes lowered as promised by Le Pen and investors will hopefully not see the French debt levels explode irresponsibly following this chaotic ‘snap election’ parentheses.

Investors are now in a hurry to return to French assets and the euro at discounted prices not to miss the post-election rally next Monday. The spread between the German and French 10-year yield fell below 70 from last week’s peak of 86.

The CAC 40 rose by 0.8% to 7,695 yesterday, extending the rally seen in recent days, but Ozkardeskaya noted that the French index

remains well below the 8,000 mark where it was trading when Macron announced the snap election. It will probably shrug off the election fear with a further recovery but in the medium run, a hung government will prevent the French from moving forward with any reforms: that’s positive when you think of unsustainable tax cuts but that’s not necessarily positive for the long term growth as other reforms will also be blocked.

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JPMorgan’s UK Economist Allan Monks said little is known about the details of Labour’s approach to fiscal policy, and this is unlikely to change immediately following the election result.

The party is communicating that there will be no major tax rises, no significant spending cuts and no slippage from the current fiscal rules, all while boosting trend growth. Absent good luck, it will be difficult to achieve all these commitments over the next parliament, in our view.

From a strategy perspective, Mislav Matejka, the bank’s head of global and European equity strategy, rates the UK equity market overweight, with a preference for the FTSE-250 over FTSE-100, and sees a Labour win as positive for banks and homebuilders, mixed for utilities and general retail and less positive for transport and energy sectors.

Make UK: ‘Business will welcome such a clear result’

Stephen Phipson, chief executive of Make UK, said:

Business will welcome such a clear result and an end to the political and economic instability of the last few years which is essential for companies to now bring forward much needed investment.

Looking ahead, the new government has a lot in its in-tray to address. First and foremost is the urgent need to kick start the UK’s anaemic growth levels of recent years and, boost investment in our infrastructure, without which we cannot address the many urgent priorities the country faces at national and regional level.

A modern, long-term industrial strategy which tackles the skills crisis in particular will be key to delivering this growth. Manufacturers stand ready to work with the new government and all stakeholders as a matter of urgency to help deliver this.

Denby Pottery Factory in Ripley, north England. Photograph: Darren Staples/AFP/Getty Images

Analysts: ‘Some upside to GDP, inflation and rates forecasts’

Paul Dales, chief UK economist at Capital Economics, said the new government’s policies mean economic growth could be higher.

The big shift in the political landscape that has delivered the first Labour government since May 2010 is unlikely to lead to anything like as big a shift in the economic landscape.

But at the margin, the policies of the new Labour government generate some upsides to our GDP, inflation and interest rate forecasts. The stability of the pound overnight is no surprise as a Labour win was already priced into the markets.

“The economy may give Labour a helping hand,” he said. He explained:

Labour is taking over just as inflation has fallen back to the 2% target and the Bank of England is on the cusp of cutting interest rates from 5.25%. Our forecasts that inflation will fall a bit further and the Bank will cut rates to 3% next year explains why we think GDP growth will accelerate, to 1.2% this year and to 1.5% in both 2025 and 2026.

Moreover, our current estimate is that at the first fiscal event after the election (probably in September), the Office for Budget Responsibility will grant Labour fiscal headroom of around £16bn (0.6% of GDP), up from £8.9bn (0.3%) in the March budget.

That may mean Labour can raise spending a bit further than planned without raising taxes or borrowing by more than planned. Looser fiscal policy, though, may just mean inflation is a little higher and interest rates don’t fall as far.

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“What a difference five years makes, Labour have turned themselves around” and are on course for a decisive victory, Kathleen Brooks, research director at the currency broker XTB, said.

Since the result is broadly as expected, the pound has had a muted reaction to [the] news. Due to this, the focus will now shift to what the future holds. Sir Keir Starmer still needs to lay out in more detail his plans for spending and taxation, and, most importantly, how he will grow the economy.

The financial markets trust that the UK’s fiscal position is secure with Labour, hence why bond yields and the pound have remained stable during this election campaign. The focus now will quickly shift to Starmer’s first 100 days in office, and how he lays out his economic plans to boost growth at the same time as improving public services.

Investors will be watching to ensure that Keir Starmer maintains his ‘stability’ message and fiscal prudence, otherwise he could find that the bond vigilantes are never far away. Ultimately, it’s the bond market that will determine Labour’s fiscal policies.

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Sterling best-performing currency against dollar this year; investors say ‘boring is good’

Sterling has firmed slightly this morning. It has risen since Rishi Sunak called the election in late May, and is the strongest-performing major currency against the dollar this year, with a gain of 1.2%.

Laura Foll, portfolio manager at Janus Henderson Investors, said:

It’s a breath of fresh air to be running [UK] equities in a market where the election is seen as a non-event.

I’m hoping we’re going back to an era where boring is good and politics treads lighter in people’s lives. It will be a more gradual lifting [of confidence].

Government borrowing costs were little changed, with the yield (or interest rate) on the 10-year gilt rising by 6 basis points.

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Introduction: Pound holds steady as business calls for ‘fresh start’ under Labour

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

We’ve woken up to a landslide Labour victory in the UK.

Keir Starmer has pledged that it is “now time for us to deliver” as his party’s election victory brings an end to 14 years of Conservative rule. The Labour leader is expected to become prime minister later today.

Rishi Sunak’s party is on track to record its worst ever performance in a general election.

As the results are broadly as expected and already priced into financial markets, the pound held steady. It has firmed slightly against the dollar, by 0.1% at $1.2770, and was up a smidgen against the euro at €1.18.

Stock market futures are pointing to a higher open on the FTSE 100 index in a couple of hours.

The London Chamber of Commerce said the business community looks forward to a “fresh start” under Labour.

Chief executive Karim Fatehi said:

We look forward to working with government over the coming years to build a London where businesses of all sizes thrive.

Now is the time for the new government to quickly make the changes businesses need to succeed. As laid out in our manifesto this includes the introduction of policies that protect and support the capital’s businesses, enhance London’s international competitiveness, and simplify and enable infrastructure and planning. These policies will lay the foundations for future growth, address long term skills shortages, and foster greater innovation in our capital.

The CBI business group said “business stands ready to bring its innovation, ideas, and investment to make that shared mission a reality”.

Rain Newton-Smith, CBI’s chief executive, said:

The new prime minister has been given a clear mandate to take the tough decisions on areas like planning reform and boosting grid capacity needed to get the economy firing on all cylinders. What firms need now is a government that’s ready to hit the ground running and is laser-focused on delivery.

Households and businesses across the UK have shown incredible resilience through Brexit, Covid and war in Europe. With the economy picking up steam, now is the moment to get behind growth. Setting out a positive vision for the UK economy and leaning into our international leadership should be top priorities for the first 100 days.

The TUC said Labour has a “historic opportunity” to “repair and rebuild Britain”.

The union’s general secretary Paul Nowak said:

The trade union movement stands ready to work with this new government to deliver the change working families desperately need.

This means tackling the scourge of insecure work and boosting living standards. It means fixing our crumbling public services. And it means reversing over a decade of Tory stagnation with a proper plan for growth and industrial revival.

And this is the country following 14 years of Conservative rule:

The Agenda

  • 7am BST: Halifax house price index for June

  • 7am BST: German industrial production for May

  • 7.45am BST: France trade and industrial production for May

  • 10m BST: Eurozone retail sales for May

  • 1.30pm BST: US non-farm payrolls for June (forecast: +190,000), unemployment rate (forecast: unchanged at 4%)

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