“Things can only get better” - New direction and leadership for the UK Market

The nation elected Labour as their new leader in government, with the party securing a landslide majority of 174 seats. The result meant that Keir Starmer would be the new Prime Minister of the UK, ending 14 years of dominance by the Conservative party. The last time a majority was won to this scale was in 1997 where Tony Blair’s “New Labour” campaign took a 178-seat majority, that time putting a stop to almost 20 years of Conservative leadership.

What was to come for the UK over the next 10 years was a period of unspectacular, but steady, growth with the UK market (here represented by the FTSE All Share) rising over 50% up until the end of Blair’s premiership.¹ But the world today is faced with new challenges; Keir Starmer’s majority was won with a vastly different macro back drop to what there was back then. In this article we look at how todays UK market could be poised for investment and how the turn of the new government may spur growth, drawing similarities and differences to Blair’s victory of 1997.

The Blair Boost

Let’s start by going back to 1997, a much different time to now. The country was buzzing, with the revival of the 1960s phrase “Cool Britannia” as a nod to the cultural boom that was taking place. Brit pop was becoming globally recognised, with Oasis and Blur at the centre. The Spice Girls were on top, firing home the message of Girl Power! Harry Potter and the Philosophers Stone was just being published, and for film, British classic The Full Monty was released which would go on to be nominated for four Academy Awards, winning one. ²

Tony Blair was elected PM in May 1997, inheriting a relatively healthy economy from John Major. Interest rates were rising very gradually, but they were historically low, despite them actually being higher than today. Inflation was contained and close to target. Blair’s government was known as New Labour, with their slogan being “New Labour – New Britain” and their campaign anthem being “Things can only get better” by D:Ream.

The public had lost confidence in the Conservative party following a series of scandals leading up to the election as well as their divided opinion on the UK’s position in the European Union. What further helped Blair was that New Labour gave a fresh makeover to the aging, and widely criticised, policies Labour had previously pushed.

They made a significant change to the Labour Party Rule Book which moved them away from a belief in nationalism to a more neoliberal and market-led approach. It’s also fair to say that Blair’s election win was timed perfectly, where excitement amongst the Brits was brewing and the dot com bubble was beginning to pick up steam. ³

The Starmer Challenge

Now for 2024, what has Kier Starmer been left with? The era of Cool Britannia has long gone and the public spirit is much different to that of 27 years ago. Starmer takes on a country recovering from a global pandemic shock, battling high interest rates and a productivity problem, among many other challenges. Starmer certainly lacks the public boost that Blair was able to ride in the late 90s, but that’s not to say that things can’t quickly change.

With the backdrop so different, to get the country back on track we must take a different approach to previous efforts. There can be similarities drawn between Starmer and Blair’s manifestos, with the underlying themes of education and healthcare at the centre, however the 2024 manifesto proposes a new approach to growth. Starmer looks to move away from the “tax and spend” image by spending much less than 1997 and increasing government involvement. One way in which he plans to do this is by setting up a national wealth fund that will invest in public infrastructure⁴. 2024 Labour leaves behind the idea of market-led growth that has been carried by New Labour and the Conservatives and looks more at state intervention.

A key focus of the manifesto is investment into infrastructure projects and the movement towards a green future, in the hopes that a state-led initiative will drive a surge in productivity.

The move away from traditional consensus could be the kickstart our market needs. It’s no secret that the UK has lagged significantly behind other markets, most notably the US, in the past 20 years. Much of this is down to sector concentrations, with the UK lacking a lot of the high growth exposure the US is home to. But the extent to how much the UK is undervalued has long been on investors’ minds, and we’re slowly starting to see more catalysts for investors to finally act on this potential opportunity.

For instance, Starmer’s policies and manifesto should give a well-needed boost to sectors such as housebuilding and infrastructure. Light at the end of the tunnel is starting to emerge in the macro data, as inflation is coming under control, and we’ve finally had our first rate cut since the outbreak of the pandemic. Also, off the back end of cheap valuations, mergers and acquisitions activity has increased.⁵ Not only this, but recent changes to the listing rules by the FCA has meant the London Stock Exchange is now more accessible and it should encourage new businesses to IPO here.

The New Cool Britiannia

We are at what should be an exciting time for the country, a lot of the headwinds on the UK market are starting to reduce and we can’t ignore the fact that it looks cheap relative to peers. It’s times like these when the value in active management over passive management really begins to emerge, as the active manager goes that step further to spot the areas that benefit first and may move the most.

And as D:Ream said, “things can only get better”.

References

¹ BBC News | In pictures: Blair and the UK economy, ECONOMIC GROWTH
² Cool Britannia: Life in the UK when Labour last triumphed over the Tories | Politics News | Sky News
^{3, 4} 2024 manifesto versus 1997: 'There are big similarities, but big differences' - LabourList
⁵ Why the UK is the holy grail for investors (telegraph.co.uk)

To contact or read more about Joe Kenny, visit his biography here.

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