The polls indicate that Labour will win easily with two days remaining before the election; the only question is how much. Labour’s support has decreased in the last surveys conducted before election day. In the most recent YouGov survey, Labour is leading with 36% of the vote, followed by the Conservatives with 18% and Reform with 17%. On the other hand, according to the Ipsos Mori survey, Labour is leading with 43% of the vote, followed by the Conservatives with 23% and Reform with 9%.

Could the tide turn against Reform and reduce Labour’s lead?

The economy, health, and immigration are the top three concerns that matter most to voters in the United Kingdom. Remarkably, according to a YouGov study, only 13% of respondents listed leaving the EU as one of their top issues. This indicates that leaving the EU is far down the list of voters’ most significant issues. This may cause others to wonder if Reform will be as successful as some have predicted. Furthermore, several Reformers have defected to the Conservatives this week, which could help the Tories in the run-up to the election but is unlikely to keep them in power.

Therefore, even while it appears that Labour will win even if additional Reform candidates join the Conservative side, the exact size of Labour’s victory is still up in the air and may change as election day approaches. Labour may not gain as many seats as some had anticipated, even though some sources predicted a record-breaking 400 seats.

People trust Labour with the economy

Research that we have commissioned at XTB has found that the UK is more trusted than the Tories regarding the economy, business, and the stock market. The poll of over 1000 stock market investors, found that Labour was leading the Tories on how they would handle the economy at 60% vs. 40% for the Conservatives, and Labour also came out in front in terms of how trusted they were with the stock market, at 54% vs. 46% for the Conservatives.

Almost every industrial group favored a Labour win over a Conservative one. Voters believed that a Labour government would likely perform better in industries like housing, automobiles, tech, pharma, and retail; banking is the only field in which they thought the Conservatives would perform better.

Labour anticipated tax increases

Nonetheless, our survey revealed that voters expected more taxes under a Labour government and that they trusted the Conservatives more when it came to taxes. Regarding private pensions, there was also a great deal of doubt regarding which party would be preferable. 61.4% of respondents said they were certain of which party would give them greater confidence regarding their pension plans: the Conservatives or the Labour Party.

Before the election, UK asset markets remain calm, despite the FTSE 100 declining

There are two intriguing things about these survey results. First of all, it clarifies why asset markets in the UK have been largely steady before this election. In contrast to the steep decline in French stocks, the FTSE 100 managed to gain almost 5% in June. The political risk premiums applied to US and French debt, but not to UK debt, have caused bond yields in the UK to remain steady and UK gilts to outperform US and French bonds in recent days.

Although the FTSE 100 saw growth in June, just 27% of its members had a positive result in the month before the election. This implies that concentration issues are not limited to US markets, but are also expanding globally in the breadth of stock market gains. Merely 30% of the FTSE 250 firms were able to post a profit in the previous month. Therefore, when looking at individual stocks, the FTSE 100’s advancers against decliners ratio has shifted in favor of the latter.

Labor is not likely to be the cause of the UK stock market’s declining range.

The FTSE 100 has not been dominated by a single idea in recent weeks. It’s unclear if UK markets are seeing more losers than winners since Labour is predicted to win the election, given concerns about when interest rates would be lowered in addition to the risk of a global election. Rather, it appears that the UK is adopting international tendencies. As you can see here, there is also a discernible investor preference for US equities over European equities, which is not Labour’s fault.

Expected Labour victory soothes bond and FX markets

But as we approach Thursday’s UK election, we believe that the likelihood of a significant victory for a moderate major party in the UK is soothing the pound and the bond market. The recent performance of UK bonds over US and French 10-year bonds indicates that UK debt may not carry as much political risk premium.

Similarly, even though the dollar currently controls most of the G10 FX market, the pound has proven to be resilient. It has surpassed the euro, yen, and Scandi currencies in recent weeks and is among the top three performers against the dollar over the last month. The modest levels of short-term volatility observed in the GBP/USD pair indicate that the market is not anticipating a pound sell-off following the election outcome.

Naturally, in the rare event of a hung parliament or a Conservative victory, volatility may spike across UK asset prices very quickly. That being said, we believe the likelihood of that happening is extremely low.