Fonte/Source, The Guardian, The pound surged and London’s blue chip index raced ahead following the shock result in the UK general election which returned David Cameron to Downing Street with a majority.
The FTSE 250 index – a broader measure of the UK economy – reached an all-time high as bookmaker Ladbrokes leapt 9%, as did housebuilders Countrywide and Berkeley and Savills and Foxtons, the estate agency chains.
Savills predicted a release of pent-up demand in the top end of the housing market, given that Labour’s mansion tax would not be introduced.
Sterling registered its biggest jump against the US dollar since 2009, while shares in banks, energy companies and housebuilders all fuelled a rise in the FTSE 100 as the prospect of a Labour government evaporated.
Yields on UK government bonds (gilts), which reflects the price that the government pays to borrow, fell sharply in anticipation that the Bank of England will not be in a hurry to raise interest rates from their historic lows.
The FTSE 100 initially jumped 150 points, more than 2%, at the open, registering an early high of 7,036, as companies targeted by Labour policies all registered gains. It later fell back but was still up more than 100 points.
Michael Hewson chief market analyst at CMC Market, said:
“Given the contents of the Labour Party manifesto this early equity market and sterling surge is likely to be more relief that none of these measures will now come to pass.
“The pound had a difficult day yesterday, without losing too much ground but surged on last night’s early exit poll putting the Tories on 316 seats, still short of an overall majority,” said Hewson.
The market had been preparing for days of haggling over the creation of a government with opinion polls pointing to a hung parliament.
Labour – defeated in the polls in which shadow Chancellor Ed Balls lost his seat – had pledged to introduce policies which would have implications for energy companies, banks, householders, services companies and bookmakers.
Centrica – owner of British Gas – leapt 7% as did housebuilder Persimmon. State-owned banks Royal Bank of Scotland and Lloyds Banking Group were also up more than 5%.
As shares in Savills jumped, Lucian Cook, its head of residential research, said activity would return to top end of the housing market. “We expect much of the deferred demand from the pre-election period to flow back into the prime market over the remainder of 2015 and 2016, particularly given that the spectre of a mansion tax is now removed from the market,” he said.
“Improvements in the London market are likely to be sufficient to trigger a renewed ripple effect into the markets beyond the capital, as those relocating from London find it easier to sell their existing home and take advantage of the price differentials with the rest of the country,” Cook said.
But economists and analysts warned that set backs could come. Howard Archer, chief European & UK economist at IHS Global Insight, said: “The markets will be pretty pleased with this – for the time being – before other questions start to be raised.”
“The worse scenario was we had election result that resulted in a stale mate and expectations of another election at any minute. That would be bad for business confidence. In the near term it is good news for the economy… there has been evidence that economic activity was hit by the uncertainty [in the run up to the election].
But, said Archer, the markets would eventually need to take account of other factors – the prospect of an in-out referendum on the EU, the question about Scotland’s part in the United Kingdom and the influence of Conservative backbenchers on a David Cameron government.
He added: “Sterling has surged and other markets are likely to follow suit. Gilts will likely benefit from the fact that the Conservatives will likely be able to press ahead with their plans to reduce the deficit more quickly than Labour would have done”.
Laith Khalaf, senior analyst, Hargreaves Lansdown, said investors may be tempted back into UK equity funds after a period of nerves in the run up to the election. A record £1bn was pulled out of funds investing in UK shares in March as investors took a cautious approach to investing ahead of the general election on 7 May and switched their focus to continental Europe.
Bill O’Neill, head of the UK investment office at UBS Wealth Management, said: “With certainty will come a renewed confidence from investors in a more stable and transparent policy climate. For now, let’s enjoy the relief rally.”
But, O’Neill also pointed to factors that could prick the markets in coming days and weeks. “The Brexit and Scottish devolution debates might influence the path of the pound quicker than we think,” he said.