According to the bank, Labour’s policy platform, which includes a range of objectives aimed at addressing key voter concerns such as the economy, healthcare, and immigration, may not significantly sway the GBP in the short term.
Labour has proposed several initiatives, including economic stability with strict spending rules, reduction of National Health Service waiting times, the establishment of a Border Security Command, the development of a publicly owned energy provider named Great British Energy, and the creation of 6500 new teacher positions.
These initiatives are expected to be funded by closing tax breaks for private schools and tightening tax avoidance and non-domiciled taxation to support health spending.
The potential costs of Labour’s policy platform are likely to draw more attention as the UK approaches a July election. The party’s emphasis on maintaining “tough spending rules” suggests an awareness of the criticisms associated with excessive taxation and spending.
A Bloomberg poll conducted among professional and retail investors in late 2023 indicated a preference for a clear Labour victory in the next election, as it was seen as the most market-friendly outcome.
Professional investors, in particular, seemed comfortable with the prospect of a Labour win, possibly due to Labour leader Starmer’s outreach efforts to the industrial and financial sectors, aimed at alleviating concerns about a Labour-led government. Despite widespread “buyers’ remorse” over Brexit among UK citizens, the issue remains a low priority for voters. However, under a Labour government, a recalibration of UK-EU relations appears very likely.
Scotiabank concluded that the expectation of a Labour majority should not exert substantial pressure on the GBP. In fact, a Labour victory could be marginally positive for the currency in the medium to long term, especially if a Labour government could mitigate the economic disadvantages of Brexit and reduce the post-Brexit risk premium on the GBP.
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