Labour Leads in UK Elections, Some UK Industries Cautiously Optimistic

Polls indicate that Labour is expected to sweep into Westminster after Thursday's election, which may impact specific equity sectors due to policy changes.

Done Deal or Too Early to Throw the Towel?

The latest opinion polls show Labour with substantial support of 40%, which is double the backing for the Conservatives, though Reform has quickly gained support and now stands at 17%. Given the first-past-the-post electoral system, projections suggest Labour could secure a commanding super-majority of approximately 470 seats in Parliament alongside allied parties.

Source: BBC

While politicians express concerns, the markets have a more balanced perspective. Labour's key economic policies are not viewed as radically different from the current government's. Furthermore, the country's financial constraints limit possibilities for drastic change. However, the Reform Party's strong polling numbers could disrupt the status quo if they win sufficient seats to replace the Conservative Party as the main opposition party, though this seems improbable.

Yet, there are some policy differences. For instance, Labour may slightly increase public spending, which could comparatively benefit the FTSE 250 index due to its domestic focus. Labour's pledge to construct new buildings may benefit the financial and housebuilding sectors, with Barclays, Persimmon and Kier Group likely to reap the rewards. Conversely, plans to raise taxes on energy firms could impact domestic producers like Centrica due to its heavy reliance on North Sea resources, Labour's push for renewables and mixed outcomes from a potential reduction of household energy bills.

Markets Continue to Disfavour Uncertainty

A clear Labour election triumph may support the market simply by providing leadership certainty and improbability of major near-term policy shifts. Retail traders argue a Labour win will boost markets, citing historical trends of post-election UK equity growth. This could further benefit sectors viewed as gaining from Labour's revised priorities, with renewables taking the lead over traditional energy. Companies like Greencoat, Ceres Power and SSE may benefit from this.

As for the UK's currency, the pound's future seems more linked to interest rates. Higher government spending likely implies sustained inflation and a slower easing cycle by the BOE. However, both prospective PM Keir Starmer and shadow Finance Minister Rachel Reeves, a former banker, emphasise fiscal discipline and debt reduction. Ultimately, the minimal divergence in fiscal plans between the two primary parties means the election outcome probably will not significantly impact the currency market.

​Kier Group Back in Triple-Digit Levels

Kier Group's share price has risen above 100 GBX for the first time in several years, potentially ending a multiyear bear market. While the long-term trend off the 50 GBX lows shows gradual growth, surpassing 150 GBX could open the door to 280 GBX if 220 GBX gives way to bulls. This could eventually lead the stock back to its previous record high of 1500 GBX pence seen in 2017. Conversely, if bulls lose triple digits once more, it risks declining towards the lower boundary of the channel around 80 GBX.

Source: SpreadEx / Kier Group

Key Takeaways

Based on opinion polls, Labour is expected to win the upcoming election, which may impact specific equity sectors, though markets see limited risk of drastic policy changes. Labour's plans differ modestly from current policies and options are constrained. Still, they may slightly increase spending, potentially benefiting construction and finance, with higher energy taxes likely to benefit renewables over oil and gas. A clear Labour win may support markets by providing certainty and avoiding major near-term shifts.