Key points:

  • Sterling, UK shares and government bonds increased in value following the Labor Party victory.
  • The pound rose almost 0.1% against the dollar, reaching $1.2777.
  • The FTSE 250 rose 1.7% and the FTSE 100 rose 0.4%.

On Friday July 5, the pound sterling, British stocks and government bonds increased in value after the complete victory of the center-left Labor Party in the parliamentary elections. The pound rose almost 0.1% against the dollar to $1.2777, while it was steady at around 84.75 pence against the euro.

British election results

Labor won a large majority of seats in the 650-seat parliament, while Rishi Sunak’s Conservative Party had its worst performance in its long history as voters expressed frustration over a cost-of-living crisis, ineffective public services and a series of scandals.

Sterling strengthened following Sunak’s surprise announcement of an election at the end of May. This has led to the pound being the strongest currency against the dollar this year, up 0.3%. In trading, the pound returned to levels seen in 2016 around the time of the Brexit vote, reflecting confidence among traders and investors that a period of significant market volatility caused by political and economic turmoil under the Conservatives may be coming to an end.

Shares rise on hopes of a Labor government

Domestic-focused UK shares rose on Friday after Labor’s landslide victory in parliamentary elections gave investors confidence that years of market volatility would end.

The domestic-focused mid-cap FTSE 250 index rose 1.7%, its highest level since April 2022. Michael Field, European market strategist at Morningstar, said any changes in UK economic activity would have a greater impact on the FTSE 250 than the FTSE 100, and added that investors see a Labor government as a positive catalyst for the UK economy overall.

The FTSE 100 index rose 0.4% after recording its best performance in almost two months in the previous session, while the FTSE small-cap index rose 0.3%. Keir Starmer was set to become Britain’s next prime minister, ending 14 years of Conservative rule after a landslide election victory. Following this victory, the pound strengthened, rising 0.1% against the US dollar. Goldman Sachs raised its forecast for UK GDP growth and noted that the FTSE 250 mid-cap index is a stock index that investors should watch closely under a Labor government.