Home Business News Economists say a Labour government will be ‘a relief’ for markets and the pound as GDP shows 0% growth

Economists say a Labour government will be ‘a relief’ for markets and the pound as GDP shows 0% growth

12th Jun 24 11:32 am

A Labour General Election win could equal more ‘positive’ gains for the pound, with a change of government seen as a ‘relief’, according to experts at investment platform Saxo.

It comes as another fresh blow to Rishi Sunak as the ONS today (June 12th) confirmed UK GDP stagnated in April, despite the Prime Minister’s claims of economic improvement under his Conservative government.

Gross domestic product (GDP) was flat during the month, following growth of 0.4% in March, the ONS said.

Charu Chanana, Head of FX at Saxo, predicts a large stable majority for the Labour Party could equal further GBP resilience, and could offer ‘the potential to maintain smoother EU-UK relations’ amid a turbulent time for the euro.

On the other hand, she explains that a Conservative win, or even a Labour minority government, could ‘signal a weak policy framework’ and present ‘risks for the British pound’.

Charu also notes the British pound has been the ‘most resilient’ current in the G10 FX space so far this year, but warns for ‘further pushback’ as we move nearer to July 4th.

Meanwhile, Peter Garnry, head of equity at Saxo, warns Sunak’s pledged tax cuts could cause another run on the pound similar to the fallout that followed Liz Truss’s controversial mini-budget in Autumn 2022.

The former Prime Minister’s plans sent the markets into turmoil on the back of her spending plans, which included a sweeping program of tax cuts.

Saxo’s Head of FX Strategy, Charu Chanana, said, “A Labour win could be positive for the pound, given their pro-growth stance and the potential to maintain smoother EU-UK relations. However, spending concerns could limit room for gains given the lack of fiscal space. A Conservative win, or even lack of a Labour majority, could signal a weak policy framework and risks for the British pound.

“A change of government will be seen as a relief from the unstable dynamics of the Tory government and is likely to help the pound in an immediate reaction before focus turns to the fiscal framework of the new government.

“Given the election jitters recently in Mexico, India and Europe, the pound could trade somewhat cautiously into the July 4 election. The British pound has been the most resilient in the G10 FX space year-to-date, keeping in step with the US dollar’s gains, but a further pushback to Fed easing expectations could take some shine off sterling as election uncertainties prevail.”

Peter Garnry, head of equity at investment platform Saxo, added, “As we saw with the unfunded tax cuts in 2022 it caused a run on the pound and significantly increased the volatility in UK gilts which sparked a crisis in the UK pension system.”

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