History shows how a UK election can impact the country's stock market

LONDON — The U.K. is less than six weeks away from a General Election in which polls suggest the center-left Labour Party could return to power after 14 years — and analysts say stock markets would react positively to that outcome.

A Labour victory would oust the right-wing Conservative Party led by Prime Minister Rishi Sunak, who announced the July 4 vote last week. Even if Labour does not achieve a parliamentary majority, it could seek a coalition partner with a smaller party to form a government unless the Conservatives deliver a surprise outperformance.

In a Wednesday note analyzing stock movements from 1979 onward, Citi said that U.K. stocks have historically been "relatively flat to down" in the six months following elections (the research excludes the "volatile financial conditions" of the DotCom crash and Great Financial Crisis).

The MSCI UK index of large- to mid-cap stocks has been up by circa 6% six months after Labour victories and down circa 5% following Conservative wins, according to Citi.

The more domestically-oriented FTSE 250 has tended to outperform the FTSE 100 following elections, with stronger outperformance following Labour victories, it said.

Defensive stocks and financials tend to perform better post-elections, with energy performing well on both sides, the bank also found.

According to Capital Economics, the U.K. stock market has faltered on five occasions under past Labour governments.

However, the consultancy's Chief Markets Economist John Higgins said it would be "disingenuous" to attribute those entirely to the party. They occurred during the Great Depression of the 1930s, in the post-war 1940s, the aftermath of the oil market shock in the early 1970s, the DotCom crash in 2000 and during the Great