On 8 June, UK voters go to the polls to elect a new government. The vote has added significance given that the government elected will have responsibility for negotiating the UK’s exit from the European Union. The outcome of the election will also have implications for economic growth and, potentially, for the UK’s constitutional settlement. Here’s the view from Standard Life Investments.
The Conservative Party continues to enjoy a healthy lead in the polls. The Labour Party remains the main opposition party and has been gaining in popularity in the polls over recent weeks. Indeed, the Conservative lead over Labour has more than halved to 9% in our ten-poll moving average, although recent UK polling history suggests wider margins for error around any seat estimates.
For now, the Conservative lead is consistent with a moderate increase in their majority. They have benefited from a collapse in support for the UK Independence Party and are projected to make gains in Scotland at the expense of the Scottish National Party (SNP). An erosion of SNP support could potentially reduce the near-term likelihood of a second Scottish independence referendum.
Implications for the UK economy
Overall, the manifestos of both the Conservatives and Labour leave us pessimistic that the next parliament will help reverse the structural deterioration in growth seen over recent years. Worse, some of the policies being proposed could exacerbate this trend.
The Conservative manifesto is vague, leaving significant leeway to set policy during the next parliament. The onus is still on fiscal consolidation, albeit at a slower rate. In our view, the immigration target being proposed poses risks to the UK’s long-term economic growth.
Labour’s plans would represent a step change in fiscal policy, with proposals for a large increase in capital and current expenditure only partially offset by tax hikes. Alongside the absence of an immigration target, these have the potential to support near-term growth. However, plans to tighten labour and product-market regulations risk creating material economic distortions.
What of Brexit?
A larger Conservative majority could smooth the path of Brexit negotiations and reduce the risk that exit legislation fails to pass in the House of Commons. However, we do not think this will lead to a ‘softer’ Brexit, in part because the Conservatives’ immigration policies are at odds with Single Market access.
Meanwhile, Labour’s pledge to focus on retaining the benefits of the Single Market and not having an immigration target suggests a softer approach to negotiations. However, they might find themselves under pressure to adopt a harder line on this key issue given the views of the wider UK population.
Whatever the government, the willingness of both the UK and the EU negotiators to compromise will be the key determinant of the eventual post-Brexit relationship.
At times like this it’s important to take a long-term view, and speak to your Financial Planner if you have any questions about your investment strategy – as always, they’ll be happy to help.
Content in this section is provided by Standard Life Investments and does not represent the views or opinions of Jones Sheridan or Standard Life group. The information in this blog or any response to comments should not be regarded as financial advice. Please remember that the value of your investment can go up or down, and may be worth less than you paid in.