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Election result - an opportunity for investors?

Economic and political commentator George Trefgarne on what the election result means for markets.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Luke Ellis, Chief Executive of asset manager Man Group, said earlier in the year that Britain’s divided politics meant investors put it in the “too hard to think about basket”. No longer.

For the first time in nine years, the country has a strong government with a substantial majority and clear mandate. Simultaneously, a Labour leader who embraced an explicitly anti-market socialist agenda, including nationalisations and much higher taxes, has been resoundingly defeated.

The size of Boris Johnson’s majority recollects the days of Margaret Thatcher. But there the similarity ends. It would be a big mistake to think that Britain is about to embark on a return to the 1980s.

While the country has voted for a dramatic change – to leave the European Union by 31 January – the Conservative Party has also been changed. It is now more provincial, more working class, with a greater geographic spread right up into the Midlands and the North and its priorities and loyalties will be shifted accordingly.

In the third quarter of 2019 the economy ground to a halt. The latest GDP numbers from the Office for National Statistics for the three months from August to October came out showing zero growth. Survey data has also been terrible. The Purchasing Managers Indices, which measures businesses’ spending plans, all showed activity falling. In other words, a potential recession.

Now it’s all change. The dramatic 3% rise in sterling shows that international investors already believe that we’re going to see a recovery in both the UK economy and UK asset prices.

These are the three themes investors should expect.

  • First, we will be coming out of the European Union and while there’s plenty to sort out, not least agreeing the details of a new arrangement with the European Union, there should be no more meaningful arguments in Parliament about that point. The Withdrawal Agreement Bill will return to Parliament before Christmas.
  • Second, there will be more public spending, even if this leads to a higher deficit and higher government borrowing. Some of the most deprived areas of the country have voted Conservative and they can expect more government investment.

    In the last decade, Britain has invested a lower proportion of GDP than nearly every other advanced economy. In order to balance the books, previous chancellor George Osborne cut back on public sector investment. And political uncertainty held back private sector investment.

    The Conservative manifesto promises to address this, by doubling public sector investment to three per cent of GDP, or an extra £20 billion a year in infrastructure. It also promises to double government research and development spending within five years to £18 billion.
  • Third, we should expect the private sector to respond. Foreign investors will take Britain out of the “too difficult box”, resulting in a rise in portfolio and direct investment into the UK. This is an opportunity for UK retail investors too, especially in small and mid-caps. We should see a recovery in IPOs on the stock exchange and in mergers and acquisitions.

Wise and experienced investors will be very cautious about getting too carried away, as sentiment and markets can easily reverse. In particular, history suggests that a flood of public spending can risk rising inflation and interest rates. However, those are not immediate problems and for now we can focus on the renewed opportunities for growth.

Read more of our general election coverage

All our latest expert comment in one place.

General election 2019

George Trefgarne is CEO of Boscobel & Partners and the author of Norway then Canada, a new strategy for avoiding a Brexit smash. He has more than 20 years’ experience in communications, with a particular focus on strategy, thought leadership and financial services. George is a research fellow at the Centre for Policy Studies and an advisory board member at Open Europe.

HL is not expressing a view on the merits or otherwise of any of the policies of a political party. We may not share the views expressed.

Article image: Getty images – Christopher Furlong/Stringer.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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