Shares exposed to the British domestic economy saw their best gains of the year, as the Labour Party’s landslide election victory spurred hopes that political stability could support a potential rebound in economic growth. The broader European market also gained.

The domestic-heavy FTSE 250 Index rose as much as 1.8 per cent, the biggest intraday gain since Dec. 14, before trimming the rally. The FTSE 100 added 0.5 per cent, with the best-performing U.K. sectors including property, financials, retail and defense. That helped the Stoxx Europe 600 Index advance 0.5 per cent. 

With the last results to come, Keir Starmer’s Labour took 411 of the 650 seats in the House of Commons, the most since Tony Blair’s 1997 win.

“Overall, the picture is one of stability,” said Georgina Hamilton, a portfolio manager at Polar Capital. “There’s potential for a more constructive relationship with the EU, which could unlock some business investment that has lagged since Brexit,” she said.

Homebuilders were a notable outperformer, with Labour having pledged policies that would see 1.5 million new houses being built. Persimmon Plc and Vistry Group Plc both jumped about four per cent, leading gains on the FTSE 100.

“We like midcaps, consumer stocks and homebuilders in light of these election results,” said UBS AG strategist Gerry Fowler, via email.

“The U.K. consumer was already benefiting from strong nominal wage growth,” he added, “Upcoming rate cuts and the Labour policy plans could further support this, particularly in homebuilding where we see value and interest from investors.”

Meanwhile, Citigroup Inc. strategists led by Beata Manthey noted that a Labour win typically leads to an outperformance in the domestically-oriented FTSE 250 index versus the internationally-exposed FTSE 100.

“We see an improving balance of risks for U.K. small- and mid-caps, which have underperformed but are expected to have superior earnings-per-share growth,” Manthey wrote in a note.

The next catalyst for European stocks will come over the weekend, when France votes in the second round of the parliamentary elections. No matter which party comes out on top in Sunday’s French parliamentary election, some investors are betting the vote marks the beginning of a more turbulent period for the country’s stock and bond markets. 

France’s CAC 40 Index gained 0.4 per cent on Friday.

Focus will also be on a key U.S. jobs report that could provide clues on the outlook for interest-rate cuts by the U.S. Federal Reserve.