The UK general election has delivered a landslide victory for Labour, which will enter government with 412 seats and a majority of around 170.

The Conservatives have retained 121 seats, the Liberal Democrats have secured 71, while the SNP just 9. The Reform party has won 4 seats

Labour has achieved this result on just 34% of the vote, the lowest share to have ever secured a majority.

With the result broadly as expected, financial market volatility has been limited, but UK equities and the pound seem to be trading slightly stronger.

It is possible that UK assets benefit from reduced political risk premium, and the economy more generally benefits from perceived political stability.

 However, the result is unlikely to change the UK’s near-term growth outlook. With fiscal space limited, Labour’s first budget will involve shifting the balance of tax and spend, rather than outright stimulus. 

The fiscal rule may eventually be altered to allow for more investment spending and perhaps to minimise the impact of Bank of England losses. But more fundamentally, the biggest constraint on Labour’s fiscal plans may be weak potential growth. 

Labour has proposed a planning reform, green industrial policy, and closer relations with the EU to improve potential growth. But any boost from these will take years to materialise. 

Read the full article.