Goldman Sachs upgrades UK growth forecast after huge Labour election win

LONDON — Goldman Sachs on Friday upgraded its growth forecast for the U.K. after the Labour Party’s thumping victory in the country’s general election.

The investment bank said in a note released early Friday morning that it expected Labour’s fiscal policy agenda to provide a “modest boost to demand growth in the near-term” and raised its gross domestic product (GDP) forecasts for the U.K. by 0.1 percentage points in 2025 and 2026 to 1.6% and 1.5% respectively.

“Reforms to the planning system could boost housebuilding and productivity; higher public sector investment could lift potential output; and closer trade ties with the EU could mitigate some of the costs of Brexit,” Goldman Sachs economists said in the note.

However, the economists added that they “see risks that possible further increases in taxation could affect incentives to invest and Labour’s pledge to reduce net migration could weigh on labour supply.”

The U.K.’s FTSE 100 was up 0.29% by 10:30 a.m. local time on Friday as investors reacted to the election results.

The FTSE 350 household goods and home construction index was up 3.81%. Looking at individual stocks within the sector, Persimmon shares were up 4.65%, Taylor Wimpey rose 4.2%, Barratt Developments climbed 3.45% and Bellway moved 2.93% higher.

Early on Friday morning, Labour passed the threshold needed to govern alone as outgoing Prime Minister Rishi Sunak conceded defeat. Keir Starmer, leader of the center-left Labour, will become the country’s next prime minister and declared victory in the early hours. Analysts expect the Labour victory to boost U.K. markets over time, particularly when it comes to housebuilding.

JPMorgan said in a note on Friday that “Labour intends to relax planning regulations and implement other reforms fairly quickly.” “This could spur growth to some degree, but the magnitude is likely to be small and take time to occur,” the investment bank said.

— CNBC’s Ryan Browne contributed to this story.