How Labour's victory impacts Scotland's economic prospects, interest rates and markets

The economy will continue its recovery and the Bank of England remains on track to cut interest rates twice this year, benefiting millions of borrowers across the UK, after Labour’s general election victory.

However, those upbeat predictions from economists are countered by caution over what the seismic changes at Westminster could mean for specific sectors of the economy, including oil and gas companies operating in the North Sea, where Labour’s plan to increase the energy windfall tax to 78 per cent “could spell disaster”, one analyst has warned.

Meanwhile, Scottish business leaders have called for greater cooperation between governments at Westminster and Holyrood. Sandy Begbie, chief executive at Scottish Financial Enterprise, said he would like to see the two administrations “working together to remove barriers, empowering industry and helping to deliver economic growth”.

Labour’s plan to increase the energy windfall tax could have implications for oil and gas companies operating in the North Sea.

He added: “Scotland has a fundamental role to play in delivering the economic growth that the UK so desperately requires, and our world class financial services industry is ready to play its part.”

Liz Cameron, chief executive of the Scottish Chambers of Commerce, said: “Now, more than ever, we need our leaders at Holyrood and Westminster, and our new Scottish MPs, to work together to put the economy and growth at the forefront of all policy discussions to ensure that Scotland remains prosperous for all.”

Stock markets gave a muted reaction to the overnight polling results, with the benchmark FTSE-100 Index making some modest gains in morning trade on Friday. The pound stood firm as investors looked to the new political era as promising some stability.

Thomas Pugh, economist at audit, tax and consulting firm RSM UK, said: “The new Labour government doesn’t change our view that the economy will continue to improve over the rest of this year and into 2025, or that the Bank of England will cut interest rates twice this year. The economic recovery we are forecasting is driven by low inflation, a significant increase in households' real disposable incomes and rising consumer and business confidence all translating into stronger spending, investing and GDP growth. Nothing we have heard from Labour so far should alter that.”

Mark Crouch, an analyst at investment platform eToro, said major housebuilders such as Persimmon and Barratt, whose share prices have suffered following interest rate hikes, stood to benefit if Labour kickstarts the development of thousands of additional new homes.

But he had a warning for another key sector of the economy, saying: “Labour’s plan to increase the energy windfall tax could spell disaster for UK oil and gas companies operating in the North Sea. However, to counter this Labour have pledged to form Great British Energy, a new publicly owned clean-energy company. The UK’s largest independent oil and gas company, Harbour Energy, perhaps saw the writing on the wall, having since made significant investments diversifying their business away from the UK.”

Scottish Renewables chief executive Claire Mack added: “The time to secure our clean energy future is now. Maximising the enormous socio-economic potential of our renewable energy resources calls on the UK government working in partnership with industry and the Scottish Government.”

Analysts said attention in the stock market would now turn to the state opening of parliament and the King’s Speech on July 17 and the policies that may usher in, as well as the prospect of a possible interest rate cut in early August.

Ben Ritchie, head of developed market equities at Scottish funds giant Abrdn, said Labour’s landslide victory “provides the sort of clarity and stability that equity markets need in an increasingly volatile world.”