It was striking but not at all surprising how little movement there was in the pound as the expected Labour landslide in the General Election transpired.

It was not surprising because financial markets have for a while been pricing in a Labour victory with a big majority.

Not only that, of course, but there is no sign at all that Labour’s victory is going to make a huge difference to the economy, for better or worse.

Sterling has traded during election day, overnight and today in a very tight range against the dollar and euro. And the UK’s FTSE-100 index of leading shares was little changed in morning trading, after the election outcome was confirmed.

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This is in stark contrast of course to the plunge in the pound back in the summer of 2016 when it became clear that the UK electorate had voted for Brexit. That drop indicated a clear awareness in financial markets of the major economic damage that would inevitably be triggered by leaving the European Union and single market.

Financial markets are clearly not spooked by Labour’s resounding victory under Sir Keir Starmer’s leadership. Had Labour won under previous leader Jeremy Corbyn, there would likely have been significantly greater nervousness about what the future might hold. That said, even if such a scenario had transpired, it would have been highly unlikely to have prompted the scale of financial market reaction unleashed by the disastrous autumn 2022 “mini-Budget” from erstwhile Conservative prime minister Liz Truss and her chancellor, Kwasi Kwarteng.

On the other hand, the lack of any significant upward movement in the pound over the weeks since Mr Sunak called the election in late May, given it became clear quite quickly that Labour was poised to win, suggests financial markets do not expect Sir Keir's victory to boost the UK’s economic prospects significantly.

Labour has, of course, made it plain it will remain within the same fiscal framework as the current Tory one.

As the Institute for Fiscal Studies noted on June 4: “As we have seen, Labour has committed to the same debt rule as the Conservatives, and that rule makes no distinction between investment and day-to-day spending. It is also the rule that binds.”

After Labour published its manifesto on June 13, IFS director Paul Johnson declared: “This was not a manifesto for those looking for big numbers. The public service spending increases promised in the ‘costings’ table are tiny, going on trivial. The tax rises, beyond the inevitable reduced tax avoidance, even more trivial. The biggest commitment, to the much vaunted ‘green prosperity plan’, comes in at no more than £5 billion a year, funded in part by borrowing and in part by ‘a windfall tax on the oil and gas giants’.

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“Beyond that, almost nothing in the way of definite promises on spending despite Labour diagnosing deep-seated problems across child poverty, homelessness, higher education funding, adult social care, local government finances, pensions and much more besides. Definite promises though not to do things. Not to have debt rising at the end of the forecast. Not to increase tax on working people. Not to increase rates of income tax, national insurance, VAT or corporation tax.”

Labour does have the advantage of a little bit of a tailwind which might buy it a small amount of time, with the first cut in UK interest rates this cycle expected during the summer. UK base rates had by last summer risen to their current level of 5.25%, from a record low of 0.1% in December 2021. Meanwhile, the protracted brutal squeeze on real incomes seen amid the UK’s inflation crisis has eased, although the decline in living standards seen already is baked in. However, this slightly improving picture is, if not quite a dead cat bounce, only a very modest uptick after a grim and protracted period of economic stagnation.

Thomas Pugh, economist at accountancy firm RSM UK, today highlighted the challenge for Labour in having to “work out how to tackle the tough fiscal picture it has inherited”.

Mr Pugh said: “Sticking with the current plans suggests imposing additional austerity on some government departments. But raising enough tax to avoid cutting spending will be difficult, given taxes are already scheduled to rise. Borrowing more may ease the problem, but headroom is limited.”

He also flagged the challenge of economic inactivity, declaring Labour “will need to develop a plan to get some of the almost one million people who have left the workforce, mainly due to sickness, since the start of the pandemic back into work”.

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It is difficult indeed to see anything proposed by Labour that is going to make a major difference to the UK economy or living standards, with Sir Keir looking to have boxed himself in on various fronts.

He is refusing to even contemplate rejoining the European single market, something that would provide a major boost to the economy if it were ever to be sought and achieved.

To give an idea of the scale of such a boost, we can look at the cost of the Conservatives’ hard Brexit, which has in broad terms been embraced by Sir Keir with his ruling out of rejoining the European Union, single market, and customs union, and with the new Prime Minister also having made it plain there will be no return to free movement of people between the UK and European Economic Area.

Office for Budget Responsibility chairman Richard Hughes said in spring last year of Brexit’s effect: “We think that in the long run it reduces our overall output by around 4% compared with had we remained in the EU.”

Centre for European Reform associate fellow John Springford estimates Brexit had by the second quarter of 2022 reduced UK gross domestic product by 5.5%.

The Brexit damage will continue to drag down the UK economy.

Labour’s victory is viewed as likely to be positive for the housebuilding sector, given Sir Keir’s pledge to help deliver a huge number of new homes to tackle the UKs housing market woes.

Peter Lawson, who chairs Scottish law firm Burness Paull, told The Herald earlier this week: “With the messages that are coming through from Labour, it is expected there will be a boost to housebuilding combined with interest rates going down.”

On the other hand, Labour’s victory may weigh heavily on North Sea activity given the oil and gas windfall tax stance, and this is a potential heavy drag on the Scottish economy.

There is a possibility that aggregate demand could be boosted if Labour puts more money in the pockets of those who have to spend all or the vast bulk of what they have to live. However, that very much remains to be seen, especially given Labour’s pledge to adopt the Conservatives’ fiscal framework.

Based on what we have heard so far from Sir Keir and Labour, it remains difficult indeed to detect much that is going to help the UK economy out of its currently very difficult situation. So it is no surprise that we have seen no significant advance in the pound on the back of Labour’s return to power, after 14 years in opposition, and relatively little movement in sterling in the weeks leading up to the election.