More than two-thirds (69 per cent) of global fund managers believe that Labour’s policies will enhance economic growth, at a time when many have already upgraded their GDP growth forecasts, Quilter has found.

Its study revealed that fund groups had increased their UK 2025 growth forecast from a weighted average of 0.98 per cent to 1.22 per cent in the last quarter.

While the majority expected Labour’s policies to improve economic growth, 31 per cent believed they would have little impact, although no respondents expected they would reduce economic growth.

Quilter found that respondents felt political stability and the subsequent attractiveness to overseas investors was likely to be the primary driver behind this expected growth.

Fund managers had little consensus on where interest rates would sit by the end of 2025, with views ranging from 2.5 per cent to 4.5 per cent.

Almost half (47 per cent) of the respondents expected CPI in the UK to end the year between 2.51 per cent and 2.85 per cent, a level that would be higher than the current inflation rate.

Furthermore, two-thirds expected CPI to remain “well above” the 2 per cent target level by the end of 2025.

“The Labour Party and the City have not always been natural partners, but given the economic inheritance received following the general election win, Chancellor, Rachel Reeves, has done a lot to instil a level of confidence in the new government,” said Quilter Investors investment strategist, Lindsay James.

“While things are supposedly worse than expected, fund groups clearly think Labour will help stimulate economic growth, at a time when the UK’s fortunes appear healthier than they have been.

"Labour was coy with what it had planned, but markets crave stability. With such a large majority, investors clearly believe Labour does now offer that assuredness, despite the numerous tax rumours, and can bring back overseas investment.

“Meanwhile, despite the Bank of England cutting recently, interest rates remain increasingly difficult to predict, with many investors now pinning hopes on September for the Federal Reserve’s first rate cut in the US. With market volatility now hitting and fears of a slowing economy, this appears to be a realistic possibility.

“But what happens afterwards is a source of contention. In the UK, we have a wide range of forecasts, mirrored in the eurozone. In the US, however, it is expected that slowing but still good economic growth will keep a lid on the rate cuts, with inflation likely to remain persistently above the 2 per cent target at the end of next year."

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