Election 2024: Ballot unlikely to be ‘huge market mover’
While the July general election might be about to dominate the headlines in the British press in the coming weeks, it is unlikely to have significant effects on the markets, experts have said.
Sunak called the general election today following the latest inflation numbers, which came in higher than expected by economists, leading markets to sag in the morning as this pushed back expectations for the Bank of England to cut interest rates from June to August.
However, as rumours of an election began to leak out throughout the day, markets didn’t exactly recover, with both the FTSE 100 and the more domestically-focused FTSE 250 closing only 0.08 per cent above its morning low.
“Sunak’s attempts to talk up the numbers fell on deaf ears as today’s [inflation] figure has effectively kicked the can down the road for the Bank of England to cut UK rates any time soon,” said Dan Coatsworth, an investment analyst at AJ Bell.
“Sunak’s attempts to talk up the numbers fell on deaf ears as today’s [inflation] figure has effectively kicked the can down the road for the Bank of England to cut UK rates any time soon.”
Dan Coatsworth, an investment analyst at AJ Bell.
Why? Because even if the July election date was a surprise, the result almost certainly won’t be.
Labour has consistently been ahead in the polls, with models suggesting a less than one per cent chance of a Tory victory, so the lack of uncertainty is pretty reassuring to markets.
Meanwhile, investors have had plenty of time to familiarise themselves with Labour’s likely agenda.
Therefore, Luke Bartholomew, senior economist at Abrdn, said the July election was unlikely to be a “huge market mover”.
However, he noted that one implication of the early election is no autumn statement, where many were expecting further tax cuts from the government.
“While any fiscal easing would likely have been temporary, this might have very modest implications for growth this year,” he said.
How would a Labour government shape the economy?
While we haven’t seen the details of Labour’s manifesto, meaning it’s difficult to analyse the specific impacts a Labour government would have on the economy, we have a broad sense of what Labour’s priorities are.
The party’s focus on building homes is likely to be a boon for the sector, while its pledge to increase spending on achieving the UK’s net zero target should provide an uplift to green industries.
Janus Henderson portfolio manager James Henderson said the election would likely be good for the UK economy and its stock market as it breaks “log jams on major investment decisions we’re seeing in several industries”.
“Uncertainty about planning regulations and the retail energy market are just a couple of examples of things causing stasis,” he added.
However, the energy industry might take a hit from a Labour victory, as the party has pledged to set up Great British Energy, a publicly owned clean power firm, financed by an increased windfall tax on oil and gas company profits from the North Sea.
“It’s not clear exactly how much would be raised due to the volatility of oil and gas prices,” warned Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“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.”
Susannah Streeter, head of money and markets at Hargreaves Lansdown
“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.”
In addition, utility companies will face challenges as Labour pledges to take a tougher stance on water companies that pollute rivers and seas.
“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,” Streeter added.