Is a Labour ‘Supermajority’ ahead, and what does it mean for markets?

As the United Kingdom approaches its next general election, the Labour Party, led by Sir Keir Starmer, is showing a strong lead in the polls. Some analysts are even predicting a potential ‘supermajority’ (i.e. a huge lead over their rivals, the Conservative Party) for Labour, a scenario that has sparked discussions about its implications for the country's financial markets and investment landscape.

​Markets prefer stability to uncertainty

​Despite the magnitude of such a political shift, financial experts suggest that a Labour supermajority is unlikely to cause significant market disruption. This is primarily because the possibility has been anticipated for some time, allowing markets to gradually adjust to the prospect. In fact, market analysts argue that an unexpected outcome, such as a hung parliament or a coalition government, would be more likely to unsettle investors and create market volatility.

​Some unexpected help has appeared for Labour in the form of the surprise French elections. Over the other side of the English Channel, investors are faced with political instability as President Macron’s party’s control of the National Assembly is about to give way to large blocs of Far Left and Far Right members. This could result in significant political turmoil, and investors have already begun to react, driving the CAC40 lower and selling French government bonds.

​History suggest investors should remain calm

​Historical data provides some reassurance for investors. Markets have typically performed well under governments with strong majorities, regardless of their political leaning. This trend suggests that political stability, rather than party ideology, often has a positive influence on market performance.

​However, it's crucial to note that other economic factors, particularly inflation, tend to have a more significant impact on market performance than the size of a government's majority. Investors are therefore advised to focus on their long-term financial goals rather than being swayed by short-term political changes.

​What sectors might benefit?

​Looking ahead, certain sectors could potentially benefit from Labour's proposed policies. Construction, renewable infrastructure, and UK-based investments may see increased attention and support under a Labour government. Additionally, Labour's approach to Brexit, which includes the possibility of closer ties with the European Union, could positively impact some company valuations, particularly those with significant European operations or trade dependencies.

​Nevertheless, there are potential areas of concern for investors. Labour's regulatory approach and possible interventionist economic policies could create challenges in certain sectors. Investors will need to carefully monitor policy developments and their potential impacts on different industries.

​Labour's stance on Brexit and its potential implications for trade relationships could also have far-reaching effects on the UK economy and specific sectors. While closer ties with the EU might benefit some businesses, it could also lead to regulatory changes that companies would need to adapt to.

​Read more of our UK election content:

• Stocks and markets to watch if Labour win
• What would a Labour victory mean for the stock market?
• How do General Elections impact financial markets?