UK heads for 4 July general election

The UK stock market has shown a muted response to the announcement that Britain’s voters will head to the polls in six weeks’ time for the country’s first general election since December 2019.

“While political upheaval does have the potential to upset markets, the uncertainty around next steps in recent days will have been holding sentiment back,” commented Sophie Lund-Yates, lead equity analyst at financial services firm Hargreaves Lansdown. “The UK market is also reacting to a slightly more hawkish tone from the Federal Reserve, after the latest minutes showed recent data hadn’t increased their confidence in progress towards inflation targets.”

UK prime minister Rishi Sunak took many by surprise by confirming 4 July as the date for the election, with many having predicted that he would hold off until later in the year, when possibly there will be further evidence that the UK has emerged from a short, shallow recession in the second half of 2023 and inflation has been brought back or near to the Bank of England’s 2% target.

Sunak’s announcement came on the same day that data from the Office for National Statistics (ONS) showed that the UK Consumer Prices Index (CPI) rose by 2.3% in the 12 months to April, down from 3.2% in March – although an even sharper fall to 2.1% had been pencilled in by some analysts.

The government also gained encouragement this week when the International Monetary Fund (IMF) said that it now expects the UK economy to grow by 0.7% in 2024, against its April estimate of 0.5% and to then pick up to 1.5% next year as “disinflation buoys real incomes and financial conditions ease”.

Against the odds

However, prospects of being returned to office for the ruling Conservative party - which has been in power since 2010 -  are poor. Labour, the main party of opposition, has a commanding lead in opinion polls and has been boosted by recent local election successes.

”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,” said Hargreaves Lansdown’s head of money and markets Susannah Streeter. “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.

“The Chancellor [Jerremy Hunt] 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 (US$26.07 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.”

Streeter sys that the headline of Labour’s campaign will be the pledge to save the National Health Service (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.”