London midcaps touch more than two-year highs as Labour Party returns to power

"Labour wanting to boost the economy and helping businesses will more likely impact companies on the FTSE 250 than the as its more domestically oriented," said Fiona Cincotta, senior markets analyst at City Index.

British homebuilding companies were the top gainers on the FTSE 100 as investors welcomed Keir Starmer's plans for building 1.5 million new homes over the next five years.

The UK homebuilders index jumped 2.5%, while the construction sector gained 3.1%. Shares in Persimmon, Taylor Wimpey, Vistry and Barratt climbed between 2.2% and 3.4%.

The blue-chip FTSE 100, however, fell 0.5%, after logging its strongest day in almost two months in the previous session as pound strengthened against the U.S. dollar.

The FTSE small cap index was up 0.1%.

Goldman Sachs raised its UK GDP growth forecast and said that the mid-cap FTSE 250 is the stock index to watch for investors under the Labour government.

"The election reflects some confidence in the market - a strong government that can actually do things. It's something we haven't seen for many years in the UK," Nick Saunders, CEO of trading platform Webull UK said.

The yield on 10-year British government bonds gilts dropped to 4.129%, further uplifting sentiment.

With the election over, investors have priced in a 61% chance of the Bank of England commencing its rate trimming-cycle at its next meeting on August 1.

Across the Atlantic, U.S. data showed job growth slowed marginally in June and unemployment rate rose to more than a 2-1/2-year high of 4.1%, sending Nasdaq and S&P 500 to hit fresh intraday highs.