U.K. election date lifts fog over promising market recovery

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Market focus likely to remain on inflation, rates

Britain's Prime Minister and Conservative Party leader Rishi Sunak speaks with brewery workers at Vale of Glamorgan Brewery, as part of a campaign event ahead of a general election on July 4, in Barry, south Wales, Britain, May 23.A surprise British general election in July has removed a layer of uncertainty for UK markets, leaving investors to focus on the outlook for interest rates and the economy as the dominant forces driving the pound, stocks and bonds.

A shared aim of Sunak and Starmer will be to avoid upsetting a tentative calm in markets with any major fiscal announcements, analysts say. Karimalis said investors will pay particular attention to Labour’s plans but will continue to be influenced by the domestic and global economy. “Basically markets just rallied straight through that . There wasn’t a lot of policy change on the table and there wasn’t a lot of election uncertainty,” he said.

Sterling has risen around 2% so far this month thanks in part to surprisingly strong British growth data, a welcome sign for Sunak. Yet it has also been driven by inflation remaining hotter at home and in the U.S. and markets pushing back their bets on Bank of England rate cuts.

Ed Hutchings, head of rates at Aviva Investors, said the firm’s preference is to hold gilts ahead of U.S. and European debt, although it is a relatively cautious wager.

 

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