Prime Minister Rishi Sunak has called a general election for Thursday 4 July.
The Prime Minister cited economic growth and inflation coming down, as well as tax cuts for workers and increases to the state pension as key achievements for the Government.
However, with Labour leading by some way in the polls (45% t0 23% at time of writing – BBC News), the markets have already priced in a Labour win and commentators do not expect the election itself 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,” said Royal London Asset Management’s head of multi asset Trevor Greetham.
Looking at the economic details, Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: “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. 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.”
She added: “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.
“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.”
One implication of the earlier election call, added Luke Bartholomew, senior economist, abrdn, is that the further tax cutting fiscal event from the Government in the Autumn would not now happen. “While any fiscal easing would likely have been temporary this might have very modest implications for growth this year,” he said.
Where markets may take more interest, Greetham suggested was the US election. “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.”
