UK stocks rose and the pound edged higher on Friday morning as investors reacted to a decisive Labour victory in the general election.

Housebuilders were the biggest gainers when markets opened, with housing stocks collectively up by 2.3%, as traders judged a Keir Starmer government to be a positive for the sector.

Persimmon and Vistry were the top risers on the FTSE 100, both up about 3%. Barratt and Taylor Wimpey rose about 2%.

Analysts at the investment bank Jefferies said Labour’s win was “a major positive for UK housebuilders” as the party “appears more supportive, engaged and focused on delivery of homes”.

The FTSE 100 was up 0.4% on Friday morning, while the more domestic focused FTSE 250 rose as much as 1.8% to its highest point since April 2022.

The pound rose 0.1% against the dollar to almost $1.28, with sterling the strongest performing major currency against the dollar this year. Government borrowing costs remained roughly unchanged.

Currency markets had widely priced in a Labour landslide and Starmer’s key message that he would seek to restore stability, drive economic growth and take a fiscally responsible approach to government.

Labour’s election victory comes against a backdrop of an improving economy. Inflation has returned to the government’s 2% target, after a prolonged period of soaring price rises and a peak inflation rate of 11.1% in October 2022. That was the highest level in 41 years.

The economy has recovered from a shallow recession at the end of 2023 and grew by 0.7% in the first quarter of the 2024, in the latest official data.

As inflation comes down, the Bank of England is expected to start cutting interest rates, possibly as soon as August, in a move that will provide relief and hope for households facing sharply higher mortgage costs.

Paul Nowak, the TUC general secretary, said: “After 14 years of national decline this is a historic opportunity to repair and rebuild Britain.

“The trade union movement stands ready to work with this new government to deliver the change working families desperately need.”

Kathleen Brooks, the research director at the brokerage XTB, said investor focus would shift to what Labour does in the early days of power.

“The focus now will quickly shift to Sir Keir Starmer’s first 100 days in office, and how he lays out his economic plans to boost growth at the same time as improving public services.”