Leading Indicators | What will happen if Labour win the next general election?
Discover key economic and financial metrics, and what to look out for in the week ahead
2 minutes to read
Here we look at the leading indicators in the world of economics. Download the dashboard for in-depth analysis into commodities, trade, equities and more.
Market interest rates fall
Following last week’s inflation data release for June, market nerves have started to moderate. Inflation fell to a 15-month low of 7.9% in June, down from 8.7% in May and lower than expectations of 8.2%. This was the first time in four months that the inflation data did not outstrip market forecasts. Since the release, markets have adjusted their expectations for rate hikes from the Bank of England (BoE). Prior to the data being published, money markets were pricing in an additional 150bps of rate hikes this year, which would see the base rate peak at 6.5%. However, money markets are now pricing in 75bps of further rate hikes, which would mean the base rate peaks at 5.75% by November. Meanwhile, interest rate swaps have also come in on the news of potentially less interest rate hikes from the BoE. The UK 5-year SONIA swap rate is down by more than 30bps over the last week, currently at 4.69%, a step in the right direction for investors who need to secure financing.
By-elections signal change
The Conservative party held on to one seat out of three in last week’s by-elections, while Labour picked up a seat in North Yorkshire and the Liberal Democrat party gained a seat in Somerset. The narrative has since shifted towards the general election expected next year. Betting odds now indicate a 69% chance of a Labour majority following the next general election, up from 60% a month ago. Meanwhile, the likelihood of a Conservative majority has remained unchanged at 11%, and the odds of a no-majority result declined from 33% to 8%. If the UK does see its first Labour government since 2010, what will be the impact on UK CRE? With policy detail still to be hammered out, a purely chartist approach shows that CRE has previously performed relatively well under Labour. Between 1997 and 2010, UK CRE achieved inflation adjusted returns of +6.7% p.a. under the two Labour governments. The Conservative-Liberal Democrat coalition between 2010 – 2015 was the only period where UK CRE outperformed this (+8.6% p.a.). However, this was in the post-GFC economic upswing.
Now we're talking
Conference season is upon us, with the Bank of England’s ‘Festival of Mistakes’, the behavioural economics conference, ‘Nudgestock’, and the ‘Future of Britain’ conference having caught our eyes recently. Speaking at the latter, Kier Starmer explained that the UK requires ‘growth, growth, growth’. This comes as the IMF updated its forecasts for growth this afternoon and now expects the UK’s economy to grow by +0.4% in 2023 and by +1.0% in 2024.
Download the latest dashboard here