Utilities shares sink as traders weigh shock basic election

London-listed utilities shares sank today as investors digested the looming general election. 

Creaking national infrastructure, recent peaks in consumer bills and public outrage at water firms’ pollution and spillage failures are all likely to be under the microscope ahead of the 4 July vote, with Keir Starmer’s Labour party expected to propose a major shake-up in some areas.

National Grid, which is also suffering the impact of a planned £7billion capital raise, Severn Trent, United Utilities Group, SSE and Centrica were all among the biggest fallers on the FTSE 100.

National Grid is the biggest faller at 3.30pm, down 11.3 per cent. 

Meanwhile, Drax Group and under-fire South West Water owner Pennon were the biggest drag on the FTSE 250, falling more than 5 per cent each.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘A tougher stance towards water companies which pollute rivers and seas, is also likely to weigh further on the utilities sector.

‘[Labour] plans to give the regulator more power to increase fines and force firms to strip executives of bonuses.

‘Already the cost of repairs to leaky and inefficient infrastructure is a heavy future burden, and with the risk of fines becoming more severe, it’s likely to make the UK water utilities sector even less attractive.’

She added Labour would likely enact a ‘significant shake up of the public transport sector’, with plans to let more councils run bus franchises and renationalise the country’s rail network by not renewing contracts with private operators.

Streeter said: ‘This is set to affect companies like First Group, which runs services in the West, commuter services in London and an Edinburgh to London route. Mobico also runs bus services in the West Midlands, and so could also potentially be hit by increased competition.

‘However, with other train companies already taken into state control, further renationalisation would not come as a big surprise, so is unlikely to move the dial extensively in terms of share prices.’

Last October, Labour members voted to nationalise critical infrastructure, bringing ownership of the railways and energy sector under public ownership.

However, Starmer’s team are thought unlikely to make a commitment to such a plan in the party’s forthcoming manifesto.

Starmer has previously committed to bringing rail infrastructure under public ownership, but high-profile Labour figures have openly said the party will not touch energy.

Shadow business secretary Jonathan Reynolds told the BBC late last year: ‘We’re not going to nationalise the energy system.’

Labour has, however, committed to launching ‘publicly-owned clean energy company’ GB Energy, which the party says ‘will harness Britain’s sun, wind and wave energy’ to save £93billion for UK households, create ‘thousands’ of jobs, and deliver ‘100 per cent clean power by 2030’.

‘UK investors have become accustomed to political drama over the past few years’

Despite pressure on utilities shares, analysts at ING on Thursday noted that the market has largely shrugged off the prospect of a looming election.

They said: ‘UK Prime Minister Rishi Sunak has caught the country by surprise and called a snap election for 4 July, setting the scene for a short and swift campaign.

‘But you wouldn’t know it looking at UK markets, where the impact so far has been minimal.

‘UK investors have become accustomed to political drama over the past few years.’

ING suggested investors’ muted reaction to the snap election is partly driven by the major polling lead currently enjoyed by Labour, with the result looking like a ‘foregone conclusion’ amid a 20-point lead among most pollsters.

They also note that, unlike in 2019, ‘Brexit is no longer a major unknown’, meaning ‘the country’s economic relationship has… been settled and none of the major parties are keen to reopen the debate’.

ING said markets are also calmed by the prospect of another Scottish independence referendum being ‘unlikely’, while ‘neither party is promising radical fiscal policy shifts’.

Finally, the investment bank said an election does not change the outlook for Bank of England interest cuts this summer – the major driver of market gains this year.

The analysts said: ‘BoE independence is a well-established and respected principle among the major parties, and a rate cut has been telegraphed long before the election was called.’