The Invest in Women Taskforce has welcomed the appointment of Rachel Reeves as the first female chancellor, which she co-chairs. Fellow co-chair Debbie Wosskow said:

A female chancellor, one of the highest offices in the country, who has already vowed to put women at the heart of economic plans, is so vital. A female chancellor who also recognises the billions that female entrepreneurs could add to Britain’s economy is even better.

Reeves has already vowed to close the gender pay gap once and for all, and to make flexible working the norm. These are structural drivers of inequality that should be addressed at a policy level and will play an integral part in allowing women to embrace entrepreneurship.

For the most effective change, though, we need to enable a new era of public and private sector collaboration. Just 2% of capital investment goes into all-female founded teams in the UK, and we need to break this decades-long cycle. This is exactly what the taskforce exists to do and, by working with the new chancellor, we will make great strides this year and put the UK on the map for female entrepreneurs.

Former Nissan and Aston Martin executive Andy Palmer has said that the Labour party could signal a new phase for the UK automotive industry.

Palmer was chief operating officer at Japanese carmaker Nissan, bringing mass manufacturing of electric cars to the UK for the first time. He then led British sportscar maker Aston Martin until 2020. He said he hoped a stable government could attract more inward investment from major companies to build in the UK.

He said:

I’m no politician, but I am an auto guy, an industry guy. What I saw over the last five years was a disengagement with industry and business.

I woke up today with probably a greater sense of optimism for an awful long time, at least in that I’m pretty sure the Labour party will listen to autos and business.

Palmer said he believed that the UK needs more battery manufacturing. He is now chair of a Slovakian battery company, Inobat, which could potentially benefit from government support if it were to invest in the UK.

We’ve fallen behind dramatically in that green revolution. We need to grasp it.

Reeves has a tough task on her hands. Andrew Hunter, a senior economist for Moody’s Analytics, said the Labour may soon have to choose between higher taxes, higher borrowing or spending cuts.

The new Labour government has an historically strong electoral mandate, but will still need to tread a fine line between enacting the required spending and reforms to improve public services and revitalise the economy, and maintaining the confidence of financial markets.

Moreover, these challenges come at a time when the economy already faces a variety of other risks, including from geopolitical tensions or the possibility that persistent inflation could warrant interest rates staying high for longer than currently assumed.

Attracting sufficient levels of private-sector capital through their green investment plans will likely to be key to Labour’s hopes for a sustained resurgence in economic growth. But, while there is an upside risk that this succeeds and helps drive a sustained improvement in the economy’s supply side performance over the coming years, it is not our current baseline forecast.

Rachel Reeves, a former Bank of England economist, has become the UK’s first female chancellor. She posted on X:

Rachel Reeves has just gone into 10 Downing Street to be appointed chancellor.

Keir Starmer and Rachel Reeves, due to be appointed chancellor shortly, have been running a charm offensive with the City of London’s financial sector. Will it work?

Alasdair Haynes, chief executive of Aquis Exchange, an alternative stock exchange focused on smaller companies, said:

The first thing they’ve got to do is gain the confidence of the City. The first 100 days is really going to matter.

Reeves has “done a good job so far” of reassuring the City with her pitch of stability, said Haynes. However, he said he wanted the government to offer more help to growing companies, and incentives to keep them in the UK rather than going elsewhere. He would particularly like the extension of the enterprise investment scheme, a tax break for investors, to companies that are growing quickly (including many that are listed on his exchange).

However, Haynes is sceptical about plans to raise taxes that would hit some of the City’s wealthiest, such as abolishing a loophole that allows private equity bosses to pay capital gains tax on earnings rather than higher income tax, abolishing the tax break for non-domiciled people, and taxing private schools.

“It doesn’t help when you read things in the Guardian about putting up capital gains tax,” said Haynes. “That kills entrepreneurship. That’s just total madness.”

Mark Mullen, chief executive at Atom Bank, said:

There are clear similarities between running a business and running an economy. When revenues stagnate, cost cutting takes over. For years now it feels like we’ve been trying to shrink to greatness and it’s time to change course. We urgently need to invest. In our public services, in infrastructure, in our schools and universities and in housing. Our new government must foster productivity, encouraging regulators to facilitate real competition and holding businesses to account for their failures. It must encourage banks to support SMEs and drive out complacency about falling service standards. Real competition leads to better customer outcomes.

When it comes to employee welfare, companies should be encouraged to follow the data and not the dogma. Happy and healthy colleagues are good for business. And our path to net zero can either be a burden or an opportunity. We should make it the latter and incentivise companies to invest in renewables and in a sustainable future. A new government and prime minister offers us a rare opportunity to re-boot UK plc. We must seize it with both hands.

Bruce Carnegie-Brown, chairman of insurance marketplace Lloyd’s, said:

Lloyd’s looks forward to partnering with the new UK Government to generate growth and to build resilience into our economy. Our role is to provide critical solutions to support disaster resilience, insuring the transition and bringing global investment to the UK. We look to the government to bring a period of greater stability and to enact reforms necessary to improve the economy’s competitiveness.

Paul Ashworth, chief North America economist, said despite June’s forecast-beating 206,000 gain in non-farm payrolls, overall this was a “disappointing” report given the total 111,000 downward revisions to past months and the further rise in the unemployment rate to 4.1%, “which puts us one step closer to triggering the Sahm rule on recessions”.

That 206,000 gain was also not nearly as good as it looks at first glance, with 70,000 coming from government jobs.

Of the 136,00 increase in private payrolls, health care and social assistance accounted for 82,000 of those additional jobs. That suggests cyclical employment increased by only around 50,000, adding to the evidence of weakness in GDP growth, he said.

Admittedly, the rise in the unemployment rate to 4.1%, from 4.0%, was for the “right” reasons, with a 277,000 increase in the labour force eclipsing a muted 116,000 increase in the household survey measure of employment.

That means we’re getting closer to triggering the so-called Sahm rule, although since the rate is being driven up mainly by strong labour supply rather than weak labour demand, we would caution against relying on it too heavily in what has been a unique cycle in many respects.

The 206,000 increase in employment in June was similar to the average monthly gain of 220,000 over the past year, the bureau said.

Government employment rose by 70,000 in June, higher than the average monthly gain of 49,000 over the past 12 months. Healthcare added 49,000 jobs, lower than the average monthly gain of 64,000 over the prior 12 months. Employment in social assistance increased by 34,000 in June, primarily in individual and family services (+26,000). Construction added 27,000 jobs in June, higher than the average monthly gain of 20,000 over the past year.

Michael McDonough, chief economist of financial products at Bloomberg, said on X:

Job gains occurred in government, health care, social assistance, and construction, the US Bureau of Labor Statistics said.

The number of long-term unemployed – those out of work for 27 weeks or more – rose by 166,000 to 1.5 million in June, up from 1.1 million a year earlier. The long-term unemployed accounted for 22.2% of all jobless people in June.

Average hourly earnings increased by 0.3% month on month, leaving the annual growth rate unchanged at 3.9%.

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Quentin Fitzsimmons, senior fixed income portfolio manager at the US fund manager at T. Rowe Price, has looked at the measures the new Labour government is likely to take.

Tax and spending

The new government is expected to adhere to current fiscal rules, which stipulate that government debt should fall as a percentage of annual GDP in five years. At present, UK debt to GDP is just under 100% of GDP. Fiscal headroom is limited, so it is unlikely the new government will announce major spending increases or tax cuts.

The first budget should come in the autumn, and a prudent approach is expected. Throughout the electoral campaign, Labour emphasised its commitment to fiscal responsibility in a bid to reassure investors it will avoid a repeat of the chaos that engulfed UK government bonds when Liz Truss announced unfunded tax cuts in September 2022. If there are spending shortfalls, the new government is likely to favour raising additional taxes rather than increasing borrowing.

Labour market policies

He thinks the new government is likely to use labour market policies to reduce social inequality and may announce reforms quite soon. These could include raising the minimum wage and linking it to inflation.

However, the government will need to be cautious to ensure it does not exacerbate inflation pressure in the economy. Otherwise, interest rates may need to stay higher for longer.

The new government may also push for changes to zero-hour contracts and give employees greater rights from their first day of work, he said. These measures are designed to provide fairer employment conditions across the board. The UK labour market is currently quite flexible, particularly compared to other European countries. This allows for a much faster adjustment to adverse shocks and a lower unemployment rate.

Housing and planning reforms; relationship with the EU

The new government will likely look to push through housing and planning reforms. If radical enough, it could raise the potential growth rate of the economy. This may be politically costly, but the long-term economic benefits for the UK could be significant. However, it remains to be seen how quickly a major change in planning reform could be implemented.

There is also the status of the UK’s relationship with the EU to consider. Although Labour will not seek to undo Brexit, it may seek closer ties with the EU to ease some of the current trade frictions. As with housing reform, this would take a significant amount of time and would require extensive negotiations. However, if a closer UK-EU relationship is forged, it would probably raise the level of potential GDP and lead to a rebound in investment.

Chris Jowsey, chief executive at Admiral Taverns, which manages about 1,600 pubs, said:

We urge the government to provide an overhaul of the business rates system, introduce beer duty reforms and a cut on employer national insurance to help facilitate the growth of long-term, sustainable pubs that sit at the heart of their communities and support all aspects of local life.

Steve Hare, chief executive at the software company Sage, said:

Many leaders of the UK’s small and medium-sized businesses will welcome a decisive outcome, as businesses need certainty and a stable policy environment to grow and thrive.

Now, to kick-start economic growth, this new Labour Government must take action to support the nation’s small and mid-sized firms.

Michael Topham, chief executive of waste removal giant Biffa, said:

The government has pledged to collaborate with industry to deliver its manifesto commitments, including a renewed industrial strategy, infrastructure proposals, and ‘green’ economic growth.

A stable and clear policy environment with realistic timetables and as much consistency as possible across all devolved nations will be key to allowing the waste sector to invest and innovate.

Labour has sought to position itself as a pro-business party since Keir Starmer became leader in 2020, and has put the economy and business at the centre of its pitch to voters.

In a letter in May, 121 founders, chief executives and former leaders from financial services, retail and manufacturing firms backed Labour’s economic plans.

John Roberts, chief executive of electrical retailer AO World, said the business sector had some “clarity” following Labour’s win and called on the new government to deliver on its “clear mandate”.

He said the Conservatives have been “dysfunctional for some time” and added he was “hopeful” for the country and business sector under a change of government. He told the PA news agency:

There’s a really clear mandate for what is finally an elected leader to go and deliver.

Alex Baldock, chief executive of the electrical retailer Currys, urged Labour to follow through on its manifesto promise to replace business rates and overhaul business taxation.

He said:

Retailers are looking for stability, of course, but also for the government to provide the conditions for growth, through better skills, infrastructure and planning.

Most of all, we must urgently fix the broken, damaging and unfair burden of business rates. We urge the government to consult and act on all of this and, as they do so, we at Currys will engage with them all the way.

Susannah Streeter, head of money and markets at Hargreaves Lansdown said that given the poll forecasts, the Labour landslide “caused few ripples on financial markets”.

The lack of movement was unsurprising given that the overall result had already been priced in. However, the domestically focused FTSE 250, gained more ground, with a little more confidence swirling about the UK’s prospects.

Nevertheless, with an estimated 34% of the vote, Labour still took the lowest share for a governing party in history, with the Conservatives at 24% and Nigel Farage’s far-right Reform UK party at 14%.

Streeter said:

There may be a honeymoon period for the new administration, but then difficult decisions will have to be taken in office. The size of the victory and the upswell of support for smaller parties and independents will leave Labour MPs concerned about the safety of their seats at the next election. They know they have to deliver for the electorate but are likely to be hampered by a commitment to be fiscally responsible and restrain spending.

The priority will be keeping the markets unruffled in the first days, weeks and months of the new administration and not overdoing spending pledges. There may be some tinkering with the borrowing rules at some point in the future, to distinguish between day-to-day spending and investment, to propel long term growth, potentially loosening the purse further ahead.

So far, this doesn’t seem to have perturbed the debt markets, with bond investors still appearing to be more sensitive to interest rate speculation than the investment plans of an incoming government. 10-year gilt yields barely changed, hovering around 4.2%, down from almost 4.7% last October.

This result comes on the heels of a steady rise for the UK market, retaking its crown as Europe’s most valuable for the first time in nearly two years last month. With political turmoil in France now taking centre stage, the UK looks finally set to enter into a period of financial stability which has the potential to spark renewed investor interest in UK assets.

Labour has won the largest landslide since 1997, in line with polling trends in recent weeks. Jefferies economists say that for all the UK’s challenges, “it is arguably better positioned than for years, with cheap valuations, recovering GDP growth and lower policy volatility. We see this political change as a major positive for UK housebuilders”.

Jefferies analysts led by Glynis Johnson said:

For UK housebuilders, it’s less about the variation in macro outcome as a result of who wins, but more that a government led by Labour appears more supportive, engaged & focused on delivery of homes.

The UK Home Builders Federation (HBF) reports it has had a lot of engagement with the Labour Party in the past year, with meetings and updates with the Labour leader, chancellor, deputy leader & secretary of state for housing, housing minister as well as a wide range of prospective parliamentary candidates. HBF reports that across these interactions, the Labour Party message has been consistent—Labour is looking to appear positive for business as a whole, but in particular positive on planning, seeing it as a barrier not just to housing, but a range of drivers of economic growth as a whole.

Sector-specific policy from Labour appears a distinct positive and Labour’s planning ambitions in its manifesto we believe could fuel land release to underpin the next cycle of profits for the UK housebuilders. The lack of credible large-scale demand support in its manifesto doesn’t add additional nitro to this upside. But with valuations only reflecting current very moderate house price inflation, our analysis suggests neither the benefit of rate cuts over summer nor this potential land opportunity is in share prices.

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Housebuilders are expected to benefit from the new Labour government.

Labour has pledged to build 1.5m new homes over the next five years – a promise it insists it will immediately put into motion.

Alice Haine, personal finance analyst at the wealth manager Bestinvest by Evelyn Partners, the wealth manager, said:

With Britons waking up to a new Labour government today, many may wonder whether their landslide victory will inject some momentum into the UK property market. A stable political environment can potentially deliver a confidence boost to the housing market, particularly one that has struggled over the past year with high borrowing costs and a dearth of available and affordable stock. Buying a first home, upsizing and even downsizing are all major personal finance decisions, which is why confidence in how your country is run is vitally important.

Interest rates have remained at a 16-year high of 5.25% for almost a year causing major affordability challenges for first-time buyers and those looking to move to larger homes. While the combination of lower inflation and strong wage growth has offered a slight boost to housing affordability, for many the dream of home ownership is still out of reach. Throw in interest rate cuts, however, with the first reduction expected as early as next month on August 1, and, in turn, more competitive mortgage rates and the market could experience a surge in demand.

Several major mortgage lenders have already begun trimming their headline deals and while a UK rate reduction would improve mortgage rates for new borrowers and those on trackers, it won’t ease the concerns for those locked into fixed rate deals with some time left to run. Those on long-term fixes taken out before or during the early stages of the Bank of England’s rate-hiking cycle will still face higher repayments when they eventually come to refinance, Haine said.

Labour will be keen to encourage more first-time buyers to get a foot on the UK’s housing ladder, something that has become a major challenge for many young, and not so young, buyers in recent years who have struggled to find affordable homes in many parts of the country.

Boosting housebuilding, along with a proposed planning overhaul, reclassification of green belt land and a new mortgage guarantee scheme are all ways that can lure more first-time buyers into the market and improve the supply and demand imbalance. These proposals can take time, however, though some buyers may be happy to wait for the election dust to settle before they plough into the market.

Sterling has edged up nearly 0.1% to $1.2769 while stock markets open in about an hour, with the FTSE 100 index expected to make modest gains.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said:

With the general election behind us - and more political uncertainty and hopefully less scandals ahead - the Labour win is seen as being net positive for the pound and the British stocks. Cable fell from near $1.50 pre-Brexit to almost parity at the peak of the Tory disillusion with Liz Truss mini budget crisis, the changing government gives hope that at least a part of the weakness could be recovered.

For stocks, the small and medium sized stocks are expected to perform stronger than the FTSE 100 – which is more exposed to the global economic dynamics due to its high concentration of energy and mining stocks. But both should see the benefits of the upcoming rate cut from the Bank of England – and additionally the other major central banks into the year end.

Turning to France, which holds its second election round on Sunday, she said:

In France, the situation looks better from a market perspective, as well. The latest polls suggest that Marine Le Pen’s National Rally could fall ‘well short’ of a majority at this weekend’s second and final tour of legislative elections. The party is forecasted to win between 190 to 250 seats out of 577, which will leave it significantly below the 289 majority needed to pass bills easily.

As such, the French will probably not see their taxes lowered as promised by Le Pen and investors will hopefully not see the French debt levels explode irresponsibly following this chaotic ‘snap election’ parentheses.

Investors are now in a hurry to return to French assets and the euro at discounted prices not to miss the post-election rally next Monday. The spread between the German and French 10-year yield fell below 70 from last week’s peak of 86.

The CAC 40 rose by 0.8% to 7,695 yesterday, extending the rally seen in recent days, but Ozkardeskaya noted that the French index

remains well below the 8,000 mark where it was trading when Macron announced the snap election. It will probably shrug off the election fear with a further recovery but in the medium run, a hung government will prevent the French from moving forward with any reforms: that’s positive when you think of unsustainable tax cuts but that’s not necessarily positive for the long term growth as other reforms will also be blocked.

JPMorgan’s UK Economist Allan Monks said little is known about the details of Labour’s approach to fiscal policy, and this is unlikely to change immediately following the election result.

The party is communicating that there will be no major tax rises, no significant spending cuts and no slippage from the current fiscal rules, all while boosting trend growth. Absent good luck, it will be difficult to achieve all these commitments over the next parliament, in our view.

From a strategy perspective, Mislav Matejka, the bank’s head of global and European equity strategy, rates the UK equity market overweight, with a preference for the FTSE-250 over FTSE-100, and sees a Labour win as positive for banks and homebuilders, mixed for utilities and general retail and less positive for transport and energy sectors.

“What a difference five years makes, Labour have turned themselves around” and are on course for a decisive victory, Kathleen Brooks, research director at the currency broker XTB, said.

Since the result is broadly as expected, the pound has had a muted reaction to [the] news. Due to this, the focus will now shift to what the future holds. Sir Keir Starmer still needs to lay out in more detail his plans for spending and taxation, and, most importantly, how he will grow the economy.

The financial markets trust that the UK’s fiscal position is secure with Labour, hence why bond yields and the pound have remained stable during this election campaign. The focus now will quickly shift to Starmer’s first 100 days in office, and how he lays out his economic plans to boost growth at the same time as improving public services.

Investors will be watching to ensure that Keir Starmer maintains his ‘stability’ message and fiscal prudence, otherwise he could find that the bond vigilantes are never far away. Ultimately, it’s the bond market that will determine Labour’s fiscal policies.