On 8th June 2017 the UK public are to return to the polls for a third timein two years. Theresa May has called a General Election in the hope that an increased majority will help her deliver the ‘strong and stable leadership’ we need.
If you’re experiencing some déjà vu, this is the same promise that big Dave made in 2015. His ‘strong and stable’ government oversaw the biggest constitutional crisis in a generation and a massive spike in racially motivated violence. After abandoning ship just two years in, we now are left with the renewed possibility that the UK will break up entirely and the uncertainty of our future relationship with our biggest trading partner whilst inevitably bitter break up negotiations take place. If this is stable, one can only wonder what chaos would look like.
So should we believe Theresa May? The markets are saying yes. The pound is probably the best indication of confidence in our economy. Since calling the election, the pound has strengthened in an indication that investors believe that Theresa will indeed increase the Tory majority and that this will make Brexit negotiations smoother. However, it is important to note that the pound remains significantly lower ($1.29) than the pre-referendum levels ($1.48) suggesting that a lot of the uncertainty is ‘priced in’.
So what will this election mean for the different parties? One thing is for certain, it will pretty much mark the end of UKIP. The local elections resulted in massive losses to UKIP, mainly to the Tories. I suppose this is proof that the public believes UKIP never really had any credible policies other than to exit the EU,
so voting for them now would be a waste of a vote. Conversely, the Tories are set for a landslide victory as UKIP voters place their faith in Theresa and her ‘three Brexiteers’ to get the job done.
It helps their cause that the Labour party is in tatters. The only positive for the party is that it is likely to be the end of Jeremy Corbyn. With the appearance of a 1960s physics teacher and his unconvincing policies, Corbyn has completely lost the support of the middle ground that Labour need to win an election. It cannot help that he keeps backing Diane Abbott as she makes blunder after blunder, with the figures she pulls from her head that would embarrass a three year old.
It will be interesting to see if the Liberal Democrats can regain some support after the disastrous election in 2015. As they are actively pro-remain, they should resonate well with the 48.1 per cent of the population who voted to stay in. Local elections suggested they will not gain significant ground, but as Farron gains publicity towards the election, it is possible that we will see the Lib Dems re-emerge as a credible party.
From an investment perspective, we are not expecting any massive surprises at the election. However, we remain cautious moving forwards with markets near all-time highs. There are significant headwinds facing the UK economy, most notably a spike in inflation and negative real term wage growth. Both these will hurt consumer spending, and when we add in benign business investment and government spending, there is good reason to be very careful when investing in the UK. I am a strong believer that now, more than ever, it is essential to be prudent when choosing investments and asset allocation to make sure portfolios are both prepared for the uncertainty that faces us and set up to gain from long term growth trends such as the emerging market examples I have covered in previous articles.
Risk warning: The information contained in this document is provided for information purposes only and does not constitute a research recommendation or investment advice and must not be treated as a recommendation or an offer or solicitation for investment.