General election 2024: Markets buoyed by Labour landslide after Tory turmoil

The pound has remained stable and the markets have reacted positively to Labour's landslide election victory.

Shares in leading companies on the UK stock exchange have risen reflecting expectations among investors of a period of stability after years of market volatility under the Conservatives.

The top-flight FTSE 100 rose up to 0.4% at the open before falling back after recording its best day in almost two months in the previous session.

Election latest: Results as they are declared

It was outpaced by the domestically focussed FTSE 250 which was up 1.8% at one point, hitting its highest level since April 2022, and despite a slight paring saw sustained gains.

European stocks also rose to more than one-week highs in response to the UK election result.

The pan-European STOXX 600 index was up 0.4%, touching its highest level since 26 June.

Meanwhile, the pound held firm after the big win by Sir Keir Starmer's party, ending 14 years of Conservative government.

Sterling rose 0.1% against the dollar to $1.27 - the highest level since mid June - and was up 0.01% on the euro at €1.18.

Labour's victory had been widely expected and priced into financial markets.

The cost of UK state borrowing also dipped slightly as trading opened.

The rate the government has to pay to borrow money through the benchmark 10-year bond, initially fell 0.8 percentage points on Friday morning.

The dip largely held as trading progressed through the morning with the rate settling at 4.18%.

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Ben Ritchie, head of developed market equities at abrdn said: "A landslide victory provides the sort of clarity and
stability that equity markets need in an increasingly volatile world.

"If the new government get this right, businesses with significant exposure to the UK economy should be the likely winners."

Dan Coatsworth, investment analyst at AJ Bell, said: "The general election has resulted in a significant political shift for the UK and investors appear to welcome the changing of the guard, judging by how the more domestically focused FTSE 250 got off to a very strong start."

He added: "The FTSE 100's 0.4% gain today is the best market reaction for the first day of a new UK prime minister since the blue-chip index was created in 1984."

Sterling has edged up since Rishi Sunak called the election on 22 May, earlier than anticipated.

It is the strongest-performing major currency against the dollar this year, with a gain of 0.3%.

On a trade-weighted basis, the pound is now back where it was in 2016, at the time of the Brexit vote, reflecting a belief among traders that a period of market turmoil may be drawing to a close.

Kenneth Broux of Societe Generale said: "We know Labour were going to win, so this doesn't change much and this isn't a game-changer for sterling.

"We now want to know what Labour's plans are."

Labour under Jeremy Corbyn in 2019 was widely seen as negative for the economy by the City but, under Sir Keir's leadership, the party has shifted towards more traditional Tory territory.

The party has promised a focus on bolstering economic growth, improving the country's relationship with the EU and providing business with a policy clear path ahead.

In opposition it cashed in on the frustrations of the last parliament for investors amid a series of own goals, such as the fallout from the mini-budget under the short-lived Downing Street tenure of Liz Truss, who has now lost her seat.

But Rachel Reeves, who is poised to become the country's first female chancellor, is likely to enjoy only a short honeymoon period.

Stretched public finances, largely a result of COVID pandemic support and aid for energy bills following Russia's invasion of Ukraine, will limit Labour's ability to splash the cash given the party's commitment not to raise the mainstream taxes.

Despite that, expect a flood of demands for what is available from investors and business groups alike ahead of the first budget of the new parliament, expected in the autumn.