Four reasons not to fear the UK election

The Prime Minister has announced a general election on July 4th. Here is a summary of the initial views of Rathbones Group, a key partner of Markland Hill Wealth. If you have any questions or concerns, please contact us.

Polls show that the next government is almost certain to be the Labour Party, in office for the first time in 16 years. There are however four reasons not to fear change.

1. No dramatic short-term change in fiscal policy on the cards

Shadow Chancellor Rachel Reeves has pledged not to raise any of the main taxes and follow fiscal rules virtually identical to the current one. This cautious strategy means that the election is not likely to alter the short-term path of the economy much or upset the gilt (bonds) market.

2. Labour has dropped radicalism of Corbyn era

Labour Party has left most of the Corbyn policy platform behind, emphasising ‘partnership with business’ and courting the City. The differences between the parties’ economic policy platforms today are much smaller than they were in 2019. Labour’s only plans for nationalisation are the railways (which is happening already) and forming a public green energy company.

One key point of difference with the Conservatives is Angela Rayner’s proposed ‘new deal’ for working people, but this would not change the fact that the UK has a very flexible labour market by international standards.

3. The New government may have political capital for much-needed reform

Reflecting the long-term poor performance of the UK economy, there are a few key areas which both main parties have identified as ripe for change, but where the current government has failed to muster the political capital to pass any significant reform. A new government with a fresh mandate could make a positive difference in key areas like planning reform.

4. Investors have set the bar for success low

UK assets are cheap compared to their fundamentals on a variety of different measures, but even when sector valuations are considered. This started with the Brexit vote but has not recovered. The story is similar in sterling currency.

This offers cause for optimism. If disliked the years of domestic political instability – characterised by a succession of prime ministers and a lack of policy space to address structural issues – there is the possibility of change on that front if the election results in a new government with a reasonable majority. Also, Labour favours a slightly more collaborative relationship with the EU, but in any event, stability alone might be an improvement.

This is a précis of the complete Rathbones article which can be read here