US Rate Cut Hopes Buoy FTSE 100 Ahead of Election

Back
in
the
UK,
this
morning
International
Consolidated
Airlines
Group
(IAG),
Fresnillo
(FRES)
and
Barclays
(BARC)
all
rose
by
3.35%,
3.35%
and
3.04%,
respectively.
Mining
companies
also
benefited
from
the
hopes,
with
BHP
(BHP)
and
Glencore
(GLEN) both
rising
by
1.8%
and
1.5%,
respectively.

However,
the
biggest
fallers
were
JD
Sports
Fashion
(JD),
3i
Group
(IGQ),
and
Compass
Group
(CPG),
which
dropped
–2.04%,
-1.05%,
and
0.7%
respectively.
Over
the
last
trading
days,
the
UK
blue-chip
index
is down
by
just
-0.72%
overall.

Polling
opens
tomorrow
morning
in
the
UK,
and
will
last
all
day
as
voters
decide
on
the
next
government.
In
a
note
published
today,
analysts
at
Goldman
Sachs
predict
the
Labour
Party,
which
is
well
ahead
in
the
polls,
will
have
limited
“fiscal
headroom”
to
carry
out
its
raft
of
manifesto
commitments.
As
a
result
it
may
have
no
choice
but
to
increase
taxes,
alongside
a
slightly
slower
winding
down
of
government
debt
held
at
the
Bank
of
England.

“Labour
plans
to
follow
the
same
fiscal
rules
as
the
current
government,
resulting
in
limited
fiscal
headroom
in
the
manifesto,”
the
analysts
said.

“That
said,
Labour
would
likely
have
to
increase
spending
by
£14
billion
a
year
more
than
assumed
by
the
end
of
the
parliament
to
prevent
departments’
spending
from
falling
in
real,
per
capita
terms.
Much
of
this
could
be
financed
through
lower
accounting
losses
from
the
BoE’s
asset
purchase
facility,
either
via
a
reduced
pace
of
quantitative
tightening
or
a
redefinition
of
the
fiscal
rule.

“But
further
modest
tax
increases
would
likely
be
required
to
leave
headroom
at
current
levels,
with
media
reports
suggesting
that
capital
gains
and
inheritance
taxes
could
be
raised.
Our
models
suggest
that
these
policies
would
boost
demand
by
about
0.3%
over
the
forecast
horizon
relative
to
currently
announced
policy,
versus
0.2%
based
on
the
manifesto
policies.”

The
Labour
Party’s
manifesto
commits
it
to
significant
capital
expenditure
in
support
of
economic
growth
and
plans
to
“green”
the
UK’s
economy.
The
plans
include
a £1.8
billion
injection
of
funding
to
upgrade
the
UK’s
ports
and
“build
supply
chains
across
the
UK”,
as
well
as £1.5
billion
to
build
“new
gigafactories”
for
the
automotive
industry.
The
Party
also
pledges £2.5
billion
to
rebuild
the
UK’s
steel
industry
and
a
further £1
billion
to
accelerate
the
development
of
carbon
capture.

Analysts
at
DBRS
Morningstar,
the
ratings
agency,
say
there
are
opportunities
in
this
policy
set,
as
well
as
sgnificant
risks.

“Despite
a
change
in
government
from
Conservative
to
Labour,
we
expect
a
Labour
government
to
follow
prudent
economic
policies,
with
the
potential
of
boosting
growth,”
they
said
yesterday.

“In
its
manifesto,
Labour
has
pledged
ambitious
plans
to
grow
the
economy
and
step
up
clean
energy,
while
returning
public
finances
to
a
sound
position.
Although
further
details
on
concrete
policies
are
yet
to
be
presented,
we
see
execution
risks
in
Labour’s
plans,
largely
because
of
the
scale
of
the
investment
needed.

“Moreover,
poor
effectiveness
of
the
plans
could
lead
to
lower-than-expected
growth,
with
adverse
implications
for
the
fiscal
outlook.
Other
risks
could
come
from
a
failure
to
attract
private
investment
and
the
external
environment,
including
geopolitical
risks
and
weak
external
demand.”

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