Previously I’ve explained our reasons for optimism about the health of the UK economy (click here) and consumer (click here). Finally, I take a look at the political landscape and what this could mean for a UK recovery.
The UK’s political backdrop is boring… great!
2024 is being called a record year for elections around the world. For once, pleasingly, the UK’s general election appears unlikely to have investors on the edge of their seats. An expected victory for a Labour party led by Sir Keir Starmer will likely be welcomed if it is seen to herald a prolonged period of dull governance.
The Shadow Chancellor, Rachel Reeves, has seemingly had breakfast with every FTSE CEO over the past year and has been at pains to emphasise the party’s rediscovered zeal for business. While a Conservative victory appears unlikely, a Sunak-led government is by this stage a very much known quantity with Jeremy Hunt viewed as a safe pair of hands at the Treasury.
All quiet on the northern front
North of the border, the SNP has endured its very own annus horribilis. Nicola Sturgeon’s fall from grace during 2023 was spectacular, although it does highlight the depressingly small-time nature of Scottish politics that one of the key factors was the purchase of a £110k campervan. Her successor as party leader, Humza Yousuf, has already acquired the unfortunate epithet ‘Useless’ and appears unable to generate the same level of personal support. However, the question of Scottish independence is firmly on the political backburner.
Normalisation of UK politics
Whilst Brexit still continues to generate headlines and has helped portray the UK as a country divided, it is far more cohesive than is given credit for. In fact, unlike Europe, where parties on the radical right such as Germany’s AfD and Italy’s Lega Nord have gained ground in recent years, the mainstream parties continue to dominate UK politics. And in the US, whose Presidential Election does represent one of the year’s biggest risk factors, partisan polarisation has gone far beyond anything seen in the UK.
What is all this telling us?
A duller political environment will not in itself direct more investment towards the UK, but an end to the instability and chaos of recent years removes a barrier. It helps investors refocus on the strengths of the UK such as its depth of expertise in areas like finance, law, and life sciences.
If this can be combined with some sensible government reforms to capital markets legislation, then the whole UK equity market should benefit. In particular, though, we’d expect domestic-exposed stocks to appreciate the most. These are the companies who have seen their equity impacted most by investor antipathy towards the UK.
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