Britain’s stock market rally could end over the coming months if the likelihood of a Labour victory at the next election grows, experts have warned.
City fund managers are growing concerned that Ed Miliband’s economic policies will penalise some of the country’s largest companies and hit share prices across the London Stock Exchange.
It comes amid furore over Labour plans to limit the size of banks by forcing the big five high-street giants to give up “significant” numbers of branches to make way for new competitors.
Mr Miliband’s comments were criticised by business leaders and some consumer groups, who said that action was already under way to improve competition and that potentially breaking up the banks could mean that many people on low incomes – who may not be profitable customers – could be left without current accounts.
Chris White, head of UK Equities at Premier Asset Management, which has £2.5bn of assets under management, said: “We have already started to see the impact of politics on the market with the debate over electricity prices. The effect on utility companies has been profound, with shares in Centrica and SSE falling sharply. In fact, whatever your politics, it is becoming clear that a Labour government could be bad for many areas of the market. Labour also has no love for the defence industry or the newspaper industry. Will the food retail industry, real estate companies or consumer credit companies be targeted? Tot it all up and it is a large percentage of the UK stock market.”
Supporters of the Leader of the Opposition say his proposals will ultimately benefit the economy. On Friday, shares in Royal Bank of Scotland and Lloyds fell, although Labour insisted that reform was necessary to inject competition into a “broken” banking system and increase the flow of credit to small businesses.
Will Nicholls, market analyst at Capital Spreads, said: “Ed Miliband has recently expressed his desire to make the banking industry more competitive by forcing two new players into the markets and redistributing bank branches.
“This may well turn out to be great policy and result in the smaller businesses getting the investment they need, but one thing is for certain, it won’t be good for the share prices of the more established banks.
“Nor will his policy be good for the energy companies – he likened the banking system to the energy sector where too much power is concentrated in too few hands.”