Seven out of 10 fund groups (69%) expect Labour’s policies to be beneficial to UK economic growth, according to Quilter Investors’ latest Investor Trends Survey.

As a consequence fund groups have upped their UK 2025 growth forecast to 1.22%, from 0.98% in the last quarter.

More than two thirds of respondents to the survey said they expect Labour’s policies to enhance economic growth, while three in 10 (31%) said they saw little impact. No respondent believed they would reduce economic growth.

The respondents said political stability and the subsequent attractiveness to overseas investors was likely to be a main driver for this expected growth.

The survey also revealed a sense from fund groups that following a short, shallow recession at the end of 2023, green shoots are beginning to reveal themselves in the UK economy.

With inflation back at target and interest rate cuts now being enacted, fund groups have upped their forecasts for UK growth in 2025.

Having been surveyed prior to the Bank of England’s interest rate cut earlier this month, fund groups believed August was the most likely month for that first cut, with it being given a 41% probability.

In the US, respondents appeared to be settling on September as the first rate cut, with it being given an implied probability of 55%. Following recent market movements, this now appears to be the most likely scenario.

However there was little consensus view in the UK for where interest rates will sit by the end of 2025, with views ranging from 2.5% to 4.5%. That was mirrored for the eurozone, while for the US nearly half of respondents (46%) saw the range between 3.76% and 4.25%.

Turning to inflation, nearly half (47%) of respondents expect UK CPI to end the year between 2.51-2.85%, significantly higher than where it is now. Two-thirds expect it to remain well above the 2% target level by the end of 2025.

The survey is carried out on a quarterly basis with leading fund managers covering forecasts for macroeconomic data and timely indicators.

Lindsay James, investment strategist at Quilter Investors, said: “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.

“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.”