As dawn broke in the UK on the morning of July 5, Labour Party leader Sir Keir Starmer spoke at a victory rally of “the sunlight of hope, pale at first, but getting stronger by the day.” At 4:54am, his party had secured the 326 seats needed to form a government. Just 13 minutes earlier, former Prime Minister Rishi Sunak had conceded defeat. By 9am it was clear Labour had won a victory of historic proportions, with a majority of at least 168 seats.
Starmer spoke of “a burden finally removed” and a chance to “return politics to public service” because “service is the precondition for hope.” And, he said: “We will have to get moving immediately.” But for all the talk of walking into the sunlight, the overcast and often showery morning that greeted the new era provided a better metaphor. The UK has endured stormy weather, but there is still uncertainty about what will come to light when the clouds part.
On first readings, the most significant change appears to be that the two-party system that has dominated UK politics for centuries appears to be over – at least for the duration of this parliament. It is now more accurate to speak of a genuine three-party system, with the Liberal Democrats securing the most seats in their history – 71 at the time of writing. The Green Party and the Reform movement both secured four MPs. There are now five parties able to command a total national vote of around two million or above. In Scotland, the nationalist SNP lost heavily to Labour, while in Wales Plaid Cymru achieved its modest target of four gains, but Labour took 27 of the nation’s 32 seats. Nationally, five independents, the highest number since 1950, were elected.
Low voter turnout
But, with some votes still to be counted, turnout was below 60%, one of the lowest since 1945. That year stands alongside 1997 in Labour folklore, years when elections returned transformative Labour governments. But Labour’s approach has been to promise stability rather than transformation, and its share of the vote looks set to be the lowest any single party winning a majority in a General Election has ever received – prompting one commentator to dub this result “the loveless landslide.”
The Conservatives suffered a material loss of support, down over 20%. Much will be made of the impact of the right-wing populist Reform movement in eating away at the Tory vote, but more seats were lost to the centrist LibDems than to Reform – checking the narrative that the Conservatives need to tack right. But the scale of the defeat suffered by the Conservatives, the most successful political party in UK parliamentary history, is significant.
It is pretty clear the results represent a rejection of what the ruling party has offered over the last 14 years, and while there is discontent in some quarters about the limited ambition displayed by Labour, the overwhelming desire seems to be for a return to measured competence in government. But any analysis of voting patterns and trends leads very quickly to discussion about whether the UK’s first-past-the-post system is fit for purpose.
“While Labour has a huge parliamentary majority, it is perhaps not the political landslide it appears. Indications are that they have taken just 36% of the vote, with a large number of seats won on a slim margin.”
Matt Evans, portfolio manager, UK Sustainable Equities
Market reaction has been positive, with the pound up 0.1% against the dollar to $1.28, and the FTSE 100 rising 0.4% in early trading. The more domestically-focussed FTSE 250 was up 1.7% at one point – its highest level since April 2022, and in Europe the STOXX 600 was up 0.4% to its highest level since 26 June. Labour’s win was already priced in but, interestingly, early trading also saw the cost of UK state borrowing fall 0.8%, with that dip holding as trading progressed through the morning.
Immediate reaction is focused almost entirely on stability, with Paul Dales at Capital Economics highlighting a key point in his comment to the Financial Times. “With the elections in France and the US causing a lot of uncertainty, it’s possible that the UK may soon be in the unusual position of standing out for its political and fiscal stability.”
Matt Evans, portfolio manager, UK Sustainable Equities, concurred, saying: “The UK has suffered from uncertainty and political instability since Brexit. That may begin to improve.” But he referenced the fact that endorsement of the Party may be less emphatic than it first appears, pointing out that: “While Labour has a huge parliamentary majority, it is perhaps not the political landslide it appears. Indications are that they have taken just 36% of the vote, with a large number of seats won on a slim margin.
“Therefore, as they progress through their term, the UK’s economic challenges of planning reform, EU alignment, tax reform and public sector productivity will not easily be solved and will depend on potentially controversial trade-offs. Despite this, the ‘Securonomics’ Labour is going for should support stability in the shorter term. Monitoring policy implementation and improving growth will be key to retaining confidence.”
He expects little change in fiscal policy, and a cautious first Budget, probably in September. “The challenge will be to demonstrate Labour can boost growth while managing a tight fiscal position,” he said.
Net zero
Evans also identified net zero as a central policy area to monitor, and that’s something Seb Beloe, Partner and Head of Research at WHEB Asset Management, was quick to reference in comment issued early on Friday. “Labour has stated its intent to ‘make Britain a clean energy superpower’ and of its commitment to becoming a Net-Zero economy. Yet, the devil is in the detail,” he said. “An easy first step in proving its commitment is to make good on its manifesto promise to reverse the Tory decision to prevent the Bank of England giving due consideration to climate change in its mandates.”
James Igoe, head of the Manchester office at Redmayne Bentley, one of the UK’s largest independent investment management firms, said: “While a Labour victory was expected, it is hoped the result could inspire a UK stock market revival. It is crucial the party makes the UK economy more attractive and enhances liquidity in the market, especially from overseas investors.”
He also referenced the energy sector, saying: “We expect to see an increased focus on cleaner energy with the creation of the £8.3bn Great British Energy fund and co-investing in technologies to boost the production of eco-friendly alternatives. This will likely mean the demand for nuclear power will surge. However, these environmentally-friendly approaches are a potentially positive step for UK commerce.”
Sunak’s farewell
The sunlight was yet to brighten the morning, in a literal sense at least, when Rishi Sunak appeared outside Downing Street to announce his resignation as leader of the Conservative Party. Addressing the nation, he said: “You have sent a clear signal that the government of the United Kingdom must change and yours is the only judgment that matters. I have heard your anger, your disappointment. And I take responsibility for this loss.”
But he also said the UK was “safer, stronger, and more secure than it was 20 months ago. And it is more prosperous, fairer and resilient than it was in 2010.” Sunak received a soaking while announcing the election as a storm broke over Downing Street. He finished his speech before the rain began this time. Attention now turns to how a new Prime Minister attempts to usher in the sunshine.
