London midday: Top-flight index pares gains, FTSE 250 shines

London’s top-flight index had pared earlier gains by midday on Friday in a rather muted reaction to Labour’s expected election victory, but housebuilders and the more domestically-focused FTSE 250 outperformed.

The FTSE 100 was up 0.1% at 8,252.75, while the FTSE 250 was ahead 1% at 20,820.60. Sterling was 0.2% firmer against the dollar at 1.2785 and 0.1% higher versus the euro at 1.1813.

Britain’s Labour Party, led by Keir Starmer, swept to power after the ruling Conservative Party was booted from office in a humiliating defeat - the worst in its history.

Prime Minister Rishi Sunak called Labour leader Keir Starmer to concede defeat well before Labour passed the 326 seats required to take an absolute majority in the 650 member House of Commons.

Labour looked on course for a majority of around 170 as voters turned out to express their disapproval of 14 years of Tory rule that presided over higher taxes, lower living standards, food banks, crumbling public services and infrastructure due to austerity, a botched immigration policy, sewage in rivers and seas and anaemic economic growth caused by Brexit.

With two seats left to declare, Labour had a confirmed 412 seats up 211, while the Tories were on 121, down 250. The Liberal Democrats were on 71, a gain of 63 and the SNP held on to nine seats, a loss of 38, in a shocking night where it surrendered seats to a resurgent Labour north of the English border in a voter backlash over scandals within the SNP.

Dan Coatsworth, investment analyst at AJ Bell, said: "The general election has resulted in a significant political shift for the UK and investors appear to welcome the changing of the guard, judging by how the more domestically focused FTSE 250 got off to a very strong start.

"There is always a sense of nervousness ahead of markets opening the day after a general election, but we only get extreme volatility when investors are caught by surprise. This time round, there was nothing to get heads spinning as the result was widely expected. Instead, investors appeared to welcome the news with open arms.

"Political uncertainty is over and this removes one of the key risks around UK equities, so it’s feasible that more domestic and foreign investors are now looking for opportunities on the market. This suggests today’s reaction might not be a one-day sensation.

"Theoretically, we could see a snowball effect whereby the more the UK market goes up in response to the election, the more people start to get drawn in. There is no guarantee that will happen, but such a response would certainly be long overdue given how UK equities have been unloved since the Brexit vote in 2016.

"The FTSE 250 had a stronger reaction to the 2024 general election result than the FTSE 100 because it has more companies which do business in the UK. An initial 1.8% gain in early trading for the FTSE 250 was the second highest rise for the first day of a new UK prime minister since the mid-cap index was created in 1994. While the market could still move in a different direction as the day progresses, and indeed the index had given up some of those big gains by 9am, the initial reaction is promising."

On the macroeconomic front, the US non-farm payrolls report for June is due at 1330 BST, along with the unemployment rate and average earnings.

On home shores, data from Halifax showed that house prices remained largely unchanged in June, reflecting a subdued market.

Average house prices edged down just 0.2% on a monthly basis in June. On an annual basis, growth was unchanged on May, at 1.6%. As a result, a typical UK house now costs £288,931.

Amanda Bryden, head of mortgages at Halifax, said: "This continued stability in house prices - rising by just 0.4% so far this year - reflects a market that remains subdued, though overall activity has been recovering.

"For now, it’s the shortage of available properties, rather than demand from buyers, that continues to underpin higher prices.

"Mortgage affordability is still the biggest challenge facing both homebuyers and those coming to the end of fixed-term deals."

In equity markets, housebuilders were the standout risers following Labour’s landslide victory, as the party has plans to build 1.5 million new homes. Vistry, Persimmon, Taylor Wimpey, Barratt, Berkeley and Crest Nicholson were all up.

Crest Nicholson got an additional boost from a report that Avant Homes, which is owned by investment firm Elliott Advisors, has tabled a secret takeover offer for housebuilder. According to Sky News, Avant made an all-share proposal to the board of Crest last month.

The bid, which City sources said had been rejected by Crest's board in the last ten days, would have seen Elliott become the biggest shareholder in the combined group, according to insiders.

RBC Capital Markets said in a research note that the Labour Party has "big plans" for the sector.

"If election pledges turn into policy, today is more than just a new day in housebuilding, it is the dawning of a new age," it said.

"In the next 100 days we are likely to see the reinstatement of housing targets, the refining of greenbelt and the reform of planning, and by the end of the year the newest version of Labour may have announced a new generation of new towns.

"Over the last few years housebuilders' potential has been hamstrung, but over the next few this potential is likely to be unleashed. If the new Government's walk matches its talk we expect the sector to re-rate, and in the very short term we suspect that the talk alone will be enough to lift share prices. In our view, whilst all housebuilders benefit from the anticipated changes the biggest winners will be Taylor Wimpey, Persimmon and Vistry."

Elsewhere, Shell fell as it said in a second-quarter update note that it would take a hit of up to $2bn after it paused construction work on a biofuels plant in Rotterdam and sold a refinery in Singapore.

In broker note action, Lloyds was boosted by a rating upgrade at BNPP Exane, while Close Brothers surged on the back of an initiation at ‘buy’ at Deutsche Bank, which said the overhang on the shares has opened "considerable value".

"We expect the outcome of the FCA motor finance review to be manageable; capital to remain within range; ROTEs to trend higher; and the discount to eventually unwind," it said. "At 0.5 x TBV Close Brothers is worth the risk."

Softcat was hit by a downgrade to ‘underperform’ at Jefferies.

Market Movers

FTSE 100 (UKX) 8,252.75 0.14%
FTSE 250 (MCX) 20,820.60 1.02%
techMARK (TASX) 4,782.84 0.49%

FTSE 100 - Risers

Vistry Group (VTY) 1,309.00p 3.97%
Persimmon (PSN) 1,484.00p 3.63%
Taylor Wimpey (TW.) 153.90p 3.43%
Barratt Developments (BDEV) 508.60p 3.37%
Berkeley Group Holdings (The) (BKG) 4,848.00p 2.62%
Antofagasta (ANTO) 2,222.00p 2.35%
Fresnillo (FRES) 590.00p 2.34%
Kingfisher (KGF) 259.70p 2.12%
Melrose Industries (MRO) 585.00p 1.95%
Auto Trader Group (AUTO) 815.20p 1.85%

FTSE 100 - Fallers

HSBC Holdings (HSBA) 680.60p -1.55%
Rio Tinto (RIO) 5,308.00p -0.95%
Standard Chartered (STAN) 732.20p -0.95%
Aviva (AV.) 477.00p -0.83%
BP (BP.) 486.45p -0.79%
Shell (SHEL) 2,880.50p -0.67%
Barclays (BARC) 223.15p -0.53%
Mondi (MNDI) 1,541.00p -0.48%
Compass Group (CPG) 2,152.00p -0.42%
Imperial Brands (IMB) 2,048.00p -0.34%

FTSE 250 - Risers

Close Brothers Group (CBG) 493.60p 8.34%
Savills (SVS) 1,194.00p 6.61%
Crest Nicholson Holdings (CRST) 259.40p 6.05%
Kier Group (KIE) 147.20p 5.90%
Ocado Group (OCDO) 319.80p 4.68%
Alpha Group International (ALPH) 2,365.00p 4.19%
4Imprint Group (FOUR) 6,170.00p 4.05%
Marshalls (MSLH) 320.50p 3.55%
SThree (STEM) 445.00p 3.49%
Coats Group (COA) 85.00p 3.41%

FTSE 250 - Fallers

Softcat (SCT) 1,708.00p -5.01%
Bridgepoint Group (Reg S) (BPT) 237.80p -2.30%
Watches of Switzerland Group (WOSG) 419.20p -1.09%
Twentyfour Income Fund Limited Ord Red (TFIF) 104.80p -0.95%
Diversified Energy Company (DEC) 1,107.00p -0.81%
Foresight Group Holdings Limited NPV (FSG) 504.00p -0.79%
Hipgnosis Songs Fund Limited NPV (SONG) 101.40p -0.78%
Fidelity China Special Situations (FCSS) 199.60p -0.70%
Hargreaves Lansdown (HL.) 1,106.50p -0.67%
Plus500 Ltd (DI) (PLUS) 2,296.00p -0.61%