UK Domestic Stocks Surge as Labour Party Rides to Victory

UK domestic-focused stocks surged following the Labour Party's landslide win in the parliamentary election, bringing stability and ending years of market volatility. The FTSE 250 hit its highest level since April 2022. Investors are positive about the Labour government’s impact on the economy, particularly in the housing and automobile sectors.

UK domestic-focused stocks surged on Friday after the Labour Party scored a landslide victory in a parliamentary election, bringing a sense of stability to investors who expect it to end years of market volatility. The domestically focussed mid-cap FTSE 250 was up 1.7%, hitting its highest level since April 2022, as of 0747 GMT.

"Any changes in the UK's economic activity will impact the FTSE 250 more than the FTSE 100. Investors feel that a labour government is going to be a positive catalyst for the UK economy as a whole," said Michael Field, European market strategist at Morningstar. The blue-chip FTSE 100 rose 0.4%, after logging its best day in almost two months in the previous session. The FTSE small cap was up 0.3%.

Keir Starmer was set to become Britain's next prime minister, ending 14 years of Conservative government after a cruising victory in the polls. The pound held firm after the win and was last up 0.1% against the U.S. dollar.

Goldman Sachs raised its UK GDP growth forecast and said that the mid-cap FTSE 250 is the stock index to watch for investors under the Labour government. Automobile and parts were the highest gainers among sectors, with a 3.1% rise. Homebuilders and real estate stocks also jumped 2.4% and 1.5%, respectively, as investors cheered Starmer's plans for the housing sector.

Banks, however, slipped 0.5%. The yield on 10-year British government bonds gilts dropped 3 basis points to 4.17%, further uplifting sentiment.

With the election behind, investors have priced in over a 54% chance of the Bank of England commencing its rate trimming-cycle at its next meeting on August 1. Data-wise, investor focus will also be on the U.S. non-farm payrolls data later in the day for more clarity on the Federal Reserve's monetary policy path.

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