Labour landslide – Sir Keir’s chance to make UK a crypto hub

Following Labour’s landslide victory in Thursday’s general election, Sir Keir Starmer now has a unique opportunity to position Britain as a global cryptocurrency hub.

The Labour Party must still establish clear party-line positions on crypto-related technologies like blockchain. However, their January finance platform document suggested a forward-looking stance by mentioning “embracing securities tokenisation and a central bank digital currency” as part of their vision for the UK.

As I was quoted by Bloomberg, Yahoo Finance, Investor Ideas, Cointelegraph, and Blockhead, amongst other media, the key to positioning the UK as a global crypto hub lies in developing a clear and comprehensive regulatory framework.

A well-defined regulatory environment will offer clarity and security to businesses and investors alike. By collaborating closely with industry leaders and stakeholders, a Labour government can ensure that regulations strike a balance. Therefore promoting innovation while safeguarding the financial system’s stability.

This stance would position the UK as an appealing destination for crypto companies seeking a stable and supportive regulatory climate.

The strategic imperative is evident for Starmer and Labour. By establishing the UK as a global leader in cryptocurrency, they aim to stimulate economic growth, generate employment opportunities, and foster innovation.

The potential advantages go beyond the cryptocurrency industry, enriching the UK’s broader financial ecosystem and solidifying its position as a forward-looking, dynamic economy.

UK stocks

Despite Labour’s win, this won’t be the principal reason UK stocks will secure substantial gains for the remainder of the year.

Indeed, UK equities only increased marginally following Sir Keir Starmer and Labour’s victory.

I believe there are three main reasons why UK stocks have appeared to shrug off Labour’s win.

First, the markets had primarily anticipated this outcome, resulting in a subdued reaction. Second, the immediate uncertainty surrounding the election has been resolved. Third, we are likely to experience a period of governmental and policy stability, which markets favour.

That said, we forecast UK stocks will indeed enjoy considerable gains for the rest of 2024. However, it won’t be down to Labour’s landslide win.

The real game-changers here are historical trends and investor behaviour. Typically, low valuations attract savvy domestic and foreign investors looking to acquire undervalued assets. The UK market is currently primed for such a revival.

Key Drivers for UK Stock Market Growth

Yet several key factors must be considered for UK equities to stay on a positive trajectory.

Firstly, the new government needs to focus on and achieve economic growth. The Labour Party’s commitment to aiming for a minimum annual growth rate of 2.5% is a positive start. Having said that, this goal will need well-defined plans and efficient execution.

Also, maintaining fiscal discipline is crucial. The government should refrain from excessive spending that could widen the fiscal deficit or lead to higher taxes, potentially hampering economic growth. A balanced approach to fiscal policy will be vital to uphold investor confidence.

Moreover, the Bank of England (BoE) lowering interest rates would involve implementing a looser monetary policy, marked by reduced interest rates. This approach would boost economic activity. The BoE’s efforts to make borrowing more affordable and accessible would bolster stock prices and contribute to overall economic well-being.

In addition, the FTSE 100 is trading at a huge discount compared to its historic averages.

Over the past five years, the index has averaged a trailing PE ratio of 14.9x, while the decade-long average has been 16.3x. Currently, the ratio is much lower. Although European indices also trade at discounts, they are less substantial. In contrast, US indices are enjoying valuations above their 10-year averages.

The real momentum will likely come from the fundamentals, namely the low PE ratios and the historical pattern of rebounds in undervalued markets.

And given the significant discounts in the UK market, a large influx of investors is likely.

Astute investors, both domestic and international, are ready to re-enter the market to make the most of the appealing valuations.

Yet, it will be more than just investors interested in these opportunities.

Takeovers, Share Buybacks, and the Path to Sustainable Growth

Competitors and private equity firms are anticipated to escalate takeover activity, seizing the opportunity to acquire undervalued UK companies. In addition, UK firms might ramp up share buybacks to enhance shareholder returns and capitalise on their own low valuations.

Although Labour’s landslide victory offers a stable backdrop, it won’t be the main driver of the expected gains for UK stocks this year. The real allure lies in the ultra-low valuations; history indicates they won’t last forever.

Consequently, UK stocks’ continued growth and performance will hinge on the new government’s capacity to achieve economic growth, uphold fiscal discipline, and collaborate effectively with the Bank of England to bolster the economy.

Capital Gains Tax

I believe Labour could be planning to hike the Capital Gains Tax (CGT).

CGT is often considered low-hanging fruit, a practical and efficient method to raise the necessary revenue to fund Labour’s extensive manifesto pledges.

Labour has committed to avoiding income tax, national insurance, and VAT increases, while also proposing significant plans to tackle homelessness, fund higher education, address adult social care, and support local government finances.

However, these initiatives require substantial funding, and the money must come from somewhere. An increase in CGT is expected to be a primary target to help fill this funding gap.

As such, investors need to be aware of the potential implications of their financial strategies.

The implementation of increased CGT rates could happen shortly after Labour assumes office, potentially during the Autumn Statement.

Many investors will promptly assess their portfolios and explore tax-efficient strategies to minimise the impact on their wealth.

Protecting your investments from potential tax increases is crucial. Proactive planning is essential, so take action before it’s too late.

This involves evaluating tax-efficient investment options, adjusting portfolio allocations, and possibly realising gains under the existing CGT rates before introducing any adjustments.

Taking steps to prepare for a likely hike in CGT now can help minimise potential adverse effects on your financial future. 

To read my previous blog post, click here.

Click here for my YouTubeLinkedIn profile and X accounts.

Your comment

Your email address will not be published. Required fields are marked *

Financial Health Quiz

Discover your financial well-being with the Financial Health Quiz.

In just 2 minutes, assess your finances, get personalized results, and actionable steps – all for free.

Take the quiz

Get the latest from Nigel Green