Five Key UK Market Areas to Monitor Before the Election

As Britain gears up for an early July general election, market analysts are studying recent trends to anticipate potential outcomes as polls suggest the opposition Labour party could reclaim power after nearly 15 years.

Prime Minister Rishi Sunak’s unexpected announcement of a summer election has stirred surprise among political observers, lawmakers, and investors. While the pound saw a modest uptick, utilities faced pressure amid discussions about their ownership, likely to become a focal point during the campaign.

Labour, led by Keir Starmer, has consistently led in opinion polls by about 20 points since Sunak assumed office in late 2022, following a tumultuous period under Boris Johnson and Liz Truss. Both parties will strive to avoid the market upheaval witnessed during Truss’s brief tenure.

Concerns over UK government debt levels persist among investors, while sectors like banks, utilities, homebuilders, landlords, defense, and energy will be closely monitored in the stock market.

Equities-wise, historical data suggests that while the FTSE 100 and FTSE 250 tend to remain relatively flat post-election, the domestically focused FTSE 250 has often outperformed its globally focused counterpart, particularly during Labour administrations.

The pound, a barometer of international sentiment towards UK policies, experiences heightened volatility during election periods. Traders anticipate potential policy surprises or missteps, which could trigger market reactions.

Several sectors, including financials and utilities, will face scrutiny amid uncertainties surrounding government policies. Housebuilders and the water sector, in particular, may be impacted by election-related debates.

Bond market investors will closely analyze spending plans, especially those proposed by Labour. Gilts faced a downturn in 2022 due to proposed tax cuts under Truss, highlighting the importance of fiscal prudence for bond market stability.

Despite concerns over rising debt, credit default swap markets currently price UK sovereign debt as relatively stable, reflecting confidence in the country’s economic outlook.