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In this month’s column, Charles Carpenter of Ravenscroft discusses the implications of Labour’s victory for the UK economy and investment landscape
LABOUR’S impressive victory earned the party 200 additional seats in parliament and brought 14 years of Conservative leadership to a crashing end.
However, this didn’t come as a surprise. In fact, to many, it was a relief as the UK has turned over four Prime Ministers and five Chancellors of the Exchequer in the past five years.
Political instability causes uncertainty, something investors tend to avoid as the UK has struggled to attract foreign investment. The new government will not only be taken to task on delivering its manifesto but will also do well to maintain a period of political and economic stability.
Labour has promised to “take the brakes off” Britain’s economy and place economic growth as a cornerstone of its parliament. Fortunately for Labour, they inherited an economy that is on the road to recovery with a growing GDP, falling inflation and forecasts expecting the Bank of England to cut interest rates this year.
The UK has lagged its peers and over the past five years the FTSE 100 index total return was -32%, compared to the US S&P 500 and the Stoxx Europe 600 returning -95% and -54%, respectively. With headwinds subsiding, an air of optimism surrounds UK markets with equities looking under-owned and undervalued.
The UK pension fund industry is unique by not investing in its own domestic equity market, preferring to allocate capital elsewhere. Labour has established a National Wealth Fund, capitalised with £7.3 billion and a target to attract £3 of private investment for every £1 of public funds to invest in large infrastructure projects across the UK.
In addition, Labour has also advised that it will act to increase investment from pension funds into UK markets. A reform to consolidate and scale workplace pension schemes to generate better returns for UK savers and greater allocation into UK PLC.
A Planning and Infrastructure Bill will also be at the heart of economic growth as Labour promises a housebuilding boom with plans to build 1.5 million new homes over the course of this parliament.
Changes to the planning system and modernising planning committees are expected to lead to greater freedoms for developers and investors, as well as allow building on brownfield and grey belt sites.
The previous government failed to follow through on a promise to build 300,000 new homes per annum to keep up with housing demand. New developments not only increase employment and ease housing pressures, but more affordable housing can also boost the economy as high housing costs reduce consumer spending through elevated mortgages and rents.
The housebuilding sector has seen multiple mergers and acquisitions this year as builders seek to acquire attractively valued landbanks. Many national housebuilders are sitting on net cash and these landbanks put them at the core of the housebuilding boom.
Labour’s subsequent policies present a promising outlook for investors, provided they can fulfil their commitments. Their promise of political and economic stability, along with a strong emphasis on economic growth, creates a positive environment for the future and investors should therefore remain vigilant for emerging opportunities.
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