The pound remained stable after post-election polls showed Keir Starmer’s Labour Party on course for a landslide victory, with investors betting that a clear victory would bring stability to Britain after years of political and economic uncertainty.
Since Rishi Sunak called a snap election in the pouring rain outside Downing Street six weeks ago, financial markets have widely expected a landslide victory for Labour. Opinion polls show the party heading for one of the largest majorities in modern political history.
Anything less than a landslide victory for Labour would have been a major surprise after traders in the City had predicted a night of relative calm on the currency markets. In trading rooms along the Square Mile, the focus had been not on whether the party would win, but on the scale of Starmer’s landslide victory.
Even before the official results were announced, expected in the early hours of Friday, the exit poll suggested that Labour was on course to win a majority of 170 votes.
Starmer’s expected majority is likely to cement financial market expectations of a period of stability in British politics, after years of turmoil among the Conservatives since the Brexit vote in 2016, when the shock outcome of the Withdrawal Agreement triggered a crash in the pound.
After four prime ministers in five years, the pound has recovered from its record low of $1.03 in 2022, when Liz Truss’s mini-budget triggered a financial market meltdown that required the Bank of England to intervene to prevent pension funds from going bust. In anticipation of the outcome, the pound had been one of the strongest-performing currencies in major economies in recent weeks.
The pound remained stable following the release of exit polls on Thursday, with the pound trading unchanged from earlier in the day at around $1.27.
Labour has also moved towards the economic centre under Starmer, trying to distance itself from the more radical policies of Jeremy Corbyn after he suffered a heavy defeat to Boris Johnson’s Tories in 2019.
Analysts said a Labour majority below three figures could have prompted a reaction in financial markets. Traders also focused on whether Nigel Farage’s Reform Party could win a significant number of seats, as a possible indicator of future political pressure on Starmer over the EU and immigration. Post-election polling predicted Reform would win 13 seats.
Starmer has sought to maintain a cautious approach to economic policy following Labour’s defeat in 2019, when Corbyn promised a sweeping overhaul of the economy, and Truss’s ill-fated economic experiment.
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In the run-up to Thursday’s election, borrowing costs for the British government remained stable on international markets. In contrast, French government bond yields rose sharply due to uncertainty about the outcome of the new elections called by Emmanuel Macron.
Investors said uncertainty over the outcome of the US presidential election in November had also boosted appetite for British assets, with talk of the country becoming a relative safe haven for investors in an increasingly volatile world.
Chris Beauchamp, chief market analyst at online trading platform IG, said: “The exit poll has caused little volatility in the currency markets, as the expected landslide victory for Labour was duly predicted. The stability such a victory would bring would mean investors can cross ‘UK political risk’ off their list of worries for now. The focus now shifts across the Channel to France, where Sunday night’s election could have a greater impact.”