Fisher Investments UK Reviews: The General Election

Fisher Investments UK Market Perspectives

By Fisher Investments UK — 18/6/2024

Note: Our political commentary is intentionally non-partisan. We don’t favour any political party nor any candidate and assess political developments solely for their potential economic and market impact.

Whilst a UK general election has been rumoured for some time, the exact timing was unknown until Prime Minister Rishi Sunak dissolved Parliament in late May. With the vote now scheduled for 4 July, questions swirl as pollsters predict a landslide victory for the opposition Labour party led by Keir Starmer. In this article, we'll evaluate the economic implications of the upcoming election and what a Starmer government might mean for UK equities.

Will a Power Shift Help or Hinder Economic Growth?

Whilst it’s too soon to say what the precise composition of the UK government will be following the vote, polls and betting markets indicate Labour is likely to secure a majority. However, it isn’t clear a change in government would represent a dramatic shift in economic policy. Labour has pivoted towards a more-centrist economic platform in recent years, which has left plenty of economic agenda overlap.

Although many see Labour as historically anti-business and the Conservatives as pro-business, both sides have passed legislation equity markets liked and disliked at various times—but through it all, the UK economy has grown. As Exhibit 1 shows, UK GDP regularly expanded under Labour and Conservative Prime Ministers. In our view, the minor differences in growth are likely more to do with the health of the global economy at that time rather than domestic policy.

Exhibit 1: Annualised Growth Domestic Product Growth Under Different Prime Ministers

Source: Office for National Statistics, as of 25/05/2024. UK Real Gross Domestic Product, quarterly, 01/01/1995 – 31/03/2024.

Additionally, Labour is divided internally, much like the Conservatives. Until Starmer’s late May dust-up over his reported ousting of MP Diane Abott, these divisions have been less apparent in opposition. Governing is another matter. Campaign promises can often be watered-down through the legislative process—pragmatic realities a prime minister faces when pursuing major policy changes. It also wouldn’t take much for quarrelling Labour factions to further obstruct new legislation. To us, this suggests a degree of political gridlock might spread in the event of a new Labour majority.

Will a Leadership Change Materially Impact UK Equities?

Many investors fall into the trap of believing equities have a better chance if their preferred party wins an election. However, market data shows neither party is inherently better (or worse) for equities. As Exhibit 2 shows, equities have risen regardless of which party is in control. Since 1970, UK equities’ average annual return has been 12.1% under Conservative governments and 12.7% under Labour governments—nicely positive for both.1 What small difference there is between these average returns appears largely due to economic and market factors outside any party’s control.

Exhibit 2: Hypothetical growth of £1 invested in MSCI United Kingdom Since 1970

Source: Source: FactSet, as of 02/01/2024; Growth of £1 invested in the MSCI United Kingdom Price Index on 31/12/1969. Data is monthly from 31/12/1969 – 31/12/2023, measured in pounds. Red shading reflects a Labour Prime Minister whilst blue shading reflects a Conservative Prime Minister.

In the weeks ahead, it wouldn’t be surprising to see some additional volatility as market participants weigh the risks—and opportunities—various outcomes may yield. However, we believe the conclusion of the election will allow investors to finally move past election-related uncertainty, which could serve as a tailwind to equities as the year progresses.

Want to Dig Deeper?

In this article, we reviewed the general election’s likely limited impact on the UK economy and equities. For more insight on the market implications, you can read two recent articles from Fisher Investments UK’s MarketMinder: UK Election Update and Perspectives on Party Control and Sunak Aims to Inflate the Tories’ Election Chances.

For a closer look at what UK equities can tell us about the UK’s economic health, you can also read Fisher Investments UK’s recent MarketMinder article, Recession or No, Stocks Are OK With the UK.

For more market insights from Fisher Investments UK, read our latest articles.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. The results for individual portfolios and for different periods may vary depending on market conditions and the composition of the portfolio. Investing in foreign equity markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and Fisher Investments UK should not be regarded as personalised investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.

1Source: FactSet, as of 02/01/2024; MSCI United Kingdom Total Return Index, monthly readings from 31/12/1969 – 31/12/2023. Presented in pounds.

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