What the Labour Party's big election win means for UK economy

Keir Starmer led the Labour Party to a landslide victory in Britain's July 4th election. Initially, European equity markets (^FCHI, ^FTSE, ^SBF120) were seeing slight gains on this news, but now, at the time of posting this video, they appear to be pulling back on their excitement.

The Morning Brief welcomes Yahoo Finance Senior Reporter Akiko Fujita to talk about the British pound's reaction to these headlines and Goldman Sachs' current outlook on Britain's economic growth as Starmer shifts into his new leadership role as UK prime minister.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Luke Carberry Mogan.

Video transcript

Britain's Labor Party celebrate a landslide victory in the UK Prime Minister elections for more on what this means for markets.

Let's get to Yahoo finances, Akiko Fujita.

Hey Akiko.

Hey there, Brad.

Yeah, we heard from New Prime Minister Keir Starmer just a short time ago, outside downing street setting expectations for how quickly his government is likely to move on key issues.

Now, our country has voted decisively for change for national renewal and a return of politics to public service.

Starmer saying that changing a country is not like flicking a switch, this will take a while and that expectation certainly reflected in the markets with the FTSE.

Now pairing those initial gains we saw at the start of a trade.

Now we are seeing the pound firmly higher against the dollar close to the high for the day as investors look for more political stability in the UK.

This was a sweeping victory for the labor party unseating the conservative majority for the first time in 14 years.

Much of that the result of voter discontent over the politics of the ruling party, but there is no question, the economy played a key role here as well, the UK already the worst performing economy among G7 nations with few expectations for a turnaround just a few months ago, the OECD slash the outlook for the UK growth to just 0.4% this year and 1% next year.

Brexit, the COVID hangover, the Russian invasion of Ukraine, all significant drivers for the slowdown with voters also expressing anger over the lack of housing as well as the wait times for National Health Service.

Among other issues, the election outlook already leading to a key upgrade from Goldman Sachs this morning.

The Investment bank now saying it expects labor's fiscal policy to provide.

In their words, a modest boost to demand growth in the near term raising its forecast for growth by 0.1% over the next two years.

But golden also warning about potential risk sting from increase in taxation and the impact that could have on incentives to invest and also labor's push to reduce net migration.

Goldman says that could tighten labor supply.

We did hear from outgoing Prime Minister Rishi Soak acknowledging the challenges ahead for the UK, although he did highlight the U K's return to 2% inflation in line with the banning guys.

One more thing to point out here, voter turnout turnout was at 60%.

That's close to a record and while the center left party is celebrating its victories today, Nigel Farage, remember him the driving force behind Brexit.

He also found some success here in the election, his upstart right leaning reform UK taking a lot of the Tory votes with Farage becoming a member of parliament on his eighth try, Brad.

All right, Kiko, thanks for keeping close tabs on those election outcomes for us.

Appreciate it very much.