Leading economist Charu Chanana of investment platform Saxo has warned a Labour supermajority could spark tumbles in the UK markets and fail to change the trajectory of the economy.
- A Labour supermajority could spark tumbles in the market in fear of radical constitutional reforms
- A Labour majority will not change the trajectory of the UK economy due to fiscal constraints.
- A smaller majority for Labour will raise concerns about policy paralysis given the market’s complacency.
- A shift to the right in European politics has made the UK economy and markets look like a safe haven
Voters will head to the polls tomorrow for the first General Election in over five years.
Prime Minister Rishi Sunak and Labour leader Sir Keir Starmer have entered the final 24 hours of their campaign as they make a last-ditch effort to secure votes. Sunak will kick off his final appeal to voters to support him in order to “stop a Labour supermajority”.
But Saxo’s Charu Chanana has warned a Labour supermajority may spark tumbles in the market over fears of ‘radical constitutional reforms’ and fail to change the trajectory of the UK economy.
Saxo’s Head of FX Strategy, Charu Chanana, said, “Markets may be too complacent with risks of a Labour supermajority being ignored. The recent case of a supermajority in Mexico’s election saw markets tumbling post-elections amid risks of constitutional reforms.
While such risks remain more prominent for emerging markets, a Labour supermajority could also signal risks of radical reforms to achieve aggressive growth and investment targets. This would raise concerns about the UK’s already challenging debt outlook.
“Overall we do not see a Labour majority being able to change the near-term growth trajectory for the UK economy due to fiscal constraints. However, focus on supply-side reforms such as smoother trade relations with the EU could bring long-term tailwinds.
“A smaller-than-expected majority for the Labour party will also raise concerns about policy paralysis especially given the market’s complacency going into the elections.”
‘Shift to the right’ in European politics makes ‘positive regime’ in UK economy a ‘’safe-haven’ amid geopolitical risks
“The shift to the right in European politics could raise concerns about medium-term fiscal trajectory, making the region less attractive to international investors. As this comes together with expectations of a positive regime change in the UK, which has made the UK economy and markets look more like a safe-haven amid these geopolitical risks.”
Sterling will see ‘downside pressures’ as key risk will be ‘sharp deterioration’ of UK economy
“Sterling is likely to see some downside pressures post-elections as the door will be open for the Bank of England to start to turn more dovish at the margin. However, potential economic stability along with sterling’s high yield will continue to offer some support.
“Sterling also has a high beta to global equities and will likely remain supported as the risk-on sentiment persists.
“Key risks for sterling will be a sharp deterioration of the UK economy, or US election risks resulting in flows into the US dollar in a risk-off move.”
