As he stood in the rain yesterday afternoon, Prime Minister Sunak has surprised many of us by going early and declaring that the date for the UK general election will be Thursday, 4th July. With Labour riding high in the polls, there is much for wealth managers to consider in terms of impacts not just of the next six weeks of campaigning, manifesto pledges and political banter but also the consequences of a new government coming into power.
Sharing their reactions to the shock election news so far, wealth managers and investment experts are saying:
Royal London Asset Management’s head of multi asset Trevor Greetham says context is everything as he comments:
“2024 is delivering on its promise to be a big year in global politics with Rishi Sunak calling a UK General Election for 4 July, in a slightly surreal Downing Street announcement in the pouring rain against the distant strains of D:Ream’s 1997 anthem ‘Things Can Only Get Better’.
“In some ways things are getting better in the UK. We’ve just seen both the best quarter-on-quarter GDP and the lowest year-on-year inflation in almost three years. Context is everything, though. In real terms, GDP is still only 1.5% above its pre-pandemic, pre-Brexit level (see chart). Meanwhile, the price level for consumer goods is a whopping 23% higher. And while investors were at one point expecting at least six rate cuts from the Bank of England this year, inflation has been slow to fall and they now put only a 1 in 10 chance on a first rate cut in June.
“Against this backdrop, and absent major surprises, we don’t expect the UK election to be a market moving event. The opinion polls are strongly skewed towards a victory for Keir Starmer’s Labour. Moreover, macro-economic policy differences are far smaller than they were in 2019 when Boris Johnson squared up against Jeremy Corbyn. This time both parties are pledging to stick to fiscal rules and to stay outside the EU Single Market. Either party would inherit severely strained public finances, limiting their room for manoeuvre.
“November’s election in the US is a different matter altogether. The polls are close enough for either Biden or Trump to win the Presidency and there are major geopolitical forces hanging on the outcome – not least the war in Ukraine and the degree to which China feels emboldened to act against Taiwan, after their January 2024 election saw victory for the pro-independence party.“
Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said: “It’s frustrating that the election will lead a to further delay in resolving the harmful investment company cost disclosure rules. Fixing cost disclosure regulation must be an urgent priority for the next government.
“There is broad cross-party support for the principle that government sets the boundaries for regulation and the FCA sets the rules. The incoming government on 5 July must prioritise finalising and passing the legislation which is already in process so that the FCA can reform cost disclosures.
“The simplest solution is to remove investment companies from the scope of regulated cost disclosure – returning to the position that we had before January 2018. The government must also address the misleading way in which investment company costs are presented by wealth managers and platforms. The next government should move swiftly so the FCA can stick to its current timetable and complete its work on this by the autumn.”
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Although some of the more severe headwinds have eased, the Conservatives will go into this election facing an electorate still struggling with the cost-of-living. Inflation has come down towards target, but it has disappointingly missed forecasts, which means prospects for an interest rate cut have been pushed further into the distance. House prices have started creeping up again, amid supply shortages in key parts of the country, which means that getting onto the ladder is still unaffordable for many young people. This is while others face the daunting prospect of remortgaging on much higher rates and tenants are watching rents climb at super painful rates. Growth forecasts have been upgraded for the UK this year by the IMF this week, from 0.5 to 0.7%, but it’s hardly shooting the lights out.
“The Chancellor has pledged to cut personal taxes further, with more tinkering to National Insurance looking likely, to try and stimulate growth. The latest public sector borrowing snapshot arguably offers the government even less wiggle room to bestow treats on voters. Borrowing in April totalled £20.5 billion, above the forecast of the Office for Budget Responsibility and overall borrowing for the year was revised upwards. It seems further tax cuts would come at the expense of public services. Already current government spending plans would involve a large cut to departmental budgets over the rest of the decade, according to the IFS, to meet the government’s own fiscal rules.
“With the NHS grappling with impossible waiting lists, the numbers of long-term sick have been climbing. This reduces the pools of available labour to help kick start productivity and potentially keeps wages higher, weighing on company costs, all of which is set to constrain economic growth.
“Until we see the detail in the manifestos it’s difficult to analyse specific effects on sectors of the economy. There are some broadbrush indications in Labour’s pledges which may weigh on or benefit certain industries. Labour’s determination to be seen as economically credible may limit its ability to make immediate inroads into fulfilling its other central pledge of saving the NHS. Kier Starmer has vowed to abide by tough spending rules to be seen as responsible with the country’s financial health. But at the same time, there is a plan to cut NHS waiting times and deliver 40,000 more appointments by paying staff overtime. It’s far from clear whether cracking down on tax avoidance and non-doms will provide the budget needed for this.
“The pledge to kickstart the building of 1.5 million new homes by shaking up the planning system and fast-tracking urban brownfield sites for development would benefit the housebuilders who have had to deal with weaker demand in an era of high interest rates and slow approvals of new sites. However, it remains to be seen just how quickly this streamlining of the planning system will take effect.
“Labour intends to set up Great British Energy, a publicly owned clean power firm, with the running costs to be paid through increasing the windfall tax on oil and gas company profits from the North Sea. This would mean the current Energy Profits levy, would increase from 75% to 78%. However, it’s not clear exactly how much would be raised due to the volatility of oil and gas prices. A levy specifically on oil and gas in the North Sea is also likely to affect smaller companies rather than larger energy giants, given that they have less capacity to absorb tax changes, and it may lead to fewer contracts being clinched in the supply chain because of this. Labour also intends to draw new licensing rounds to a close, limiting future revenues streams for companies already operating on the UK’s continental shelf.
“Labour’s promise to spend £28 billion on a green push was diluted, but the party is still planning to significantly increase investment to ensure net zero targets are within reach. This would include retrofitting more homes with insulation, which is likely to benefit companies selling insulation products but also energy companies, large and smaller who have been winning contracts to make improvements to ensure homes are warmer.
“A tougher stance towards water companies which pollute rivers and seas, is also likely to weigh further on the utilities sector. It 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.
“Given the pledges already made by the Labour government, there is likely to be a significant shake up of the public transport sector. There are plans to allow more councils to run bus franchises, and Labour has also announced a readiness to renationalise the country’s rail network by not renewing contracts with private operators. This is set to affect companies like First Group, which runs services in the West of England, 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.
“The headline of Labour’s campaign will be the pledge to save the NHS with public concern about health services so high. The hardest part may well be delivering in office. Especially in the short-term considering the myriad of issues the NHS faces, such as funding, the ageing population, workforce issues and its complex inter-relationship with other policy issues such as social care. Labour may well be able to build confidence in its agenda for government by setting out a clear long-term plan early – but need to take the public with them, especially with trust in politics generally in short supply.”
Luke Bartholomew, senior economist, abrdn, said:
“While politics is certainly a major theme for markets this year, the UK election is unlikely to be a huge market mover. With Labour consistently recording large polling leads, there is relatively little uncertainty about the result of the election, and investors have had time to familiarise themselves with Labour’s likely agenda.
One implication of an earlier election though is that many were expecting another tax cutting fiscal event from this government in the Autumn before announcing the election. This will no longer happen. While any fiscal easing would likely have been temporary this might have very modest implications for growth this year.
In terms of monetary policy, a June rate cut was already pretty much ruled out by today’s inflation report. We now expect the first cut in August, which will turn not on politics but the behaviour of inflation and wage growth data over coming months.”
John Leiper, CIO at Titan Asset Management said: UK in the out-of/no recession category, and the day inflation falls to 2.3% we see the UK Tory party announce their decision to go to the polls. Coincidence? I don’t think so. With one more print between now and vote day, and increasing odds inflation falls further to the fabled 2% number, Rishi has done all he can to increase his odds at the upcoming election. To quote James Carville, “it’s the economy stupid”. We continue to watch developments closely alongside potential implications for the UK economy and markets. “
