This is the week of the election, and very likely a landmark one in the history of the country. Everyone’s anticipating what the implications will be for themselves of such an important vote on Thursday. If you are an investor, and landlords are certainty that, then the implications could be far reaching, but also far reaching for all of us!
Jeremy Corbyn, the Labour leader, and Boris Johnson, the prime minister and Conservative Party leader, have set-out their stalls in their manifestos and on the hustings, and will do final battle at the ballot box come Thursday.
Many of us will be up all election night in anticipation, eagerly awaiting the final result on Friday the 13th of what is likely to be a crucial vote, representing a parting of the ways; a cross roads of a decision for the future of the country. There is certainly clear blue water between the two main parties, decidedly radical in approach from Labour, and a strong commitment to leave the EU as quickly as possible from the Conservatives. But, there’s always the possibility of another hung parliament, if tactical voting plays a part.
Mired in uncertainty
It seems like the country has been stuck in political purgatory forever, mired in argument and counter argument, and getting nowhere, while all the time businesses and people are suffering because of the uncertainty. Is it possible that the stalemate over Brexit and the uncertainty surrounding U.K.’s future direction will end this week? After 3½ years of a battered pound, stagnant house sales and hammered domestic stock prices, it would be good to have a sense of direction, whatever course that may be, but how confident are you of that?
The opinion polls are currently suggesting a victory for Prime Minister Boris Johnson, the Conservative candidate, but Labour are catching up, and could still surprise; they could yet form a government with the help of all the other parties except the Brexit Party.
According to investment website, marketwatch.com, the result of this election could have a major impact, not just in Britain, but also on world markets and currencies.
The historical backdrop
For good or ill, David Cameron, with a complicit Parliament, allowed a referendum vote on a simple majority – stay or leave. To the surprise of much of the establishment, the vote went to leave. Parliament confirmed the commitment to leave by voting through Article 50, and then to secure a better majority to help get a deal through, Prime Minister May decided on an election.
The 2017 election ended with Theresa May losing her small majority, then having to rely on the Democratic Unionist Party to prop up her lame Conservative government. It made getting legislation through, and especially Brexit, an uphill task. Three failed attempts to get her compromise Brexit deal through Parliament prompted May’s June 2019 resignation, a full three years after the referendum result for leave, and no still sign of a resolution.
Boris Johnson came in with a cast iron promise the country would be out by October 31st. Against all the odds he struck a deal with Brussels on October 17th, but despite this he failed to bring Parliament round, hitting the same “brick wall” as his predecessor, as opponents of Brexit successfully blocked and delayed the deal.
Even when Johnson got MPs to finally voted for a second reading of the government’s withdrawal bill — the Brexit deal — time was running out, and a majority of MPs felt that the three days allocated to scrutinize the bill was not enough and blocked it yet again.
With Parliament effectively deadlocked, Johnson was forced to asked the EU for and extension beyond his promised 31st October deadline. His repeated calls for an election to break the deadlock, resisted by opposition parties for several weeks, eventually resulted in capitulation. The decision to let the people decide by way of an election was finally voted through on the fourth time of asking.
A new deadline for exiting Europe has been set for the 31st of January, so we await the result of the election to see if Mr Johnson gets a chance to keep his promise, or whether Mr Corbyn gets the keys to number 10, and jets off to Brussels to negotiate his better deal. This to be put to the people in the form of another referendum, to accept the “better” deal or remain, while Jeremy Corbyn remains neutral on the outcome.
What does all this mean for investors and the economy?
A Stock Market Almanack study shows that the Conservatives and Labour have won nine general elections each between 1945 and 2010, with in eight out of the nine years following a Conservative victory the FTSE All-Share index rose, with an average 10.8% gain.
The market rose in just three of the nine years following a Labour win, with an average negative return of 5.8%. The same study showed that returns tend to be negative in the month and week before an election, while returns after an election tend to be low.
But this time could be different; none of those previous elections involved Brexit with its consequences for equities and the pound, and none featured a Labour government in waiting with the most radical socialist policies the party has ever put forward.
Sterling has been up and down like a Yoyo in recent weeks as investors have reacted to the sways of the latest opinion polls. The pound dropped at the end of November after two election polls showed that Boris Johnson’s lead had narrowed, demonstrating investors’ fear at the prospect of a Labour government under Jeremy Corbyn.
However, a YouGov poll that successfully predicted the outcome of the 2017 election called a Johnson win with a 68-seat majority, sending the pound back up above $1.29. Another more recent poll cut Johnson’s lead by half, sending the pound back down again at the prospect of a hung Parliament, when no party reaches the 326 seats needed for a majority.
The outcome as they say is in the “lap of the Gods”, but one thing is for certain; a small majority for either of the main parties would mean another hung Parliament, it would diminish the chances of breaking the Brexit deadlock. Such an outcome would mean the return of uncertainty and the prospect of a no-deal Brexit or no Brexit at all — it would send stocks prices, house prices and the pound plunging. It may also see the break-up of the United Kingdom.