UK Banking Sector Eyes Growth Under New Government as Labour Promises Support

In the wake of the UK's recent elections and the installation of the country's first prime minister with a background at Goldman Sachs, there's a renewed sense of optimism in London's banking sector. 

Bloomberg reported earlier this week that Shore Capital is bolstering its team, hiring five bankers amid expectations of a resurgence in IPO activity. This follows Panmure Liberum's move to expand into new private capital and debt advisory units.

The UK's new government, which is seen as a return to traditional values, is fostering hope for a revitalized hiring climate within the financial sector. David Postings, chief executive of UK Finance, expressed enthusiasm for the new administration's stance on financial services, which he described as one of the UK’s pillars of economic success.

Labour’s recent manifesto, "Plan for Financial Services," has been met with optimism for its potential to stimulate growth across the financial sector. It outlines plans for enhancing the role of financial services in the national economy, noting the sector's contribution of around £110 billion in tax revenues. The manifesto emphasizes the development of "regional financial centers," streamlining regulatory frameworks, and advancing the UK as a leader in green finance and artificial intelligence within financial services.

The manifesto also proposes the creation of a "National Wealth Fund" — not a sovereign wealth fund, but a policy bank with an initial capital of £7.3 billion aimed at investing in industries like steel, carbon capture, and hydrogen.

Despite a 73% year-on-year increase in UK M&A activity in the first half of the year, analysts are cautiously optimistic about sustained growth under Labour's economic policies. Nick Dunbar of Risky Finance suggests that firms like Barclays could particularly benefit from a government that appears more supportive of the financial sector.

However, not all are convinced that the new government will dramatically alter the banking landscape. William Wright of the think tank New Financial views Keir Starmer’s leadership as likely to continue existing capital markets and pension reforms without radical changes. The perception of political competence and stability under Starmer could, nevertheless, enhance the UK’s image on the global stage, according to Paras Anand of Artemis Investment Management. This stability might attract more banking activity to London, especially with expected rate cuts by the end of the year, despite potential challenges in cross-border M&A activities due to currency fluctuations.

Overall, while the banking sector may not see a dramatic transformation, the current political environment under Labour offers a potentially stable backdrop that could encourage gradual growth and attract further investment in London’s financial services industry.

Photo: AP Photo/Thomas Krych