WeeklyWatch – The UK announces a general election

29th May 2024

Stock Take

The UK election call has been made

Many commentators were taken aback at the end of last week when the UK Prime Minister, Rishi Sunak, announced that there will be a general election on 4th July.

A lot can change in a month when it comes to politics, but the current opinion polls reveal that Sunak and the Conservative Party will face a contentious and challenging battle in order to remain in power. As it stands, the Labour Party and their leader, Sir Keir Starmer, are the strong favourites to take control of parliament.

UK economics taking political central stage

The British economy is highly likely to be a dominant issue as the political parties begin the debates.

The Head of Economic Research at St James’s Place, Hetal Mehta, stated:

“Fiscal policy will be highly constrained for whoever wins. Even with very loosely binding fiscal rules, an increase in spending will almost certainly need to be matched by tax increases. We don’t think it’s likely that a Labour government would roll back on the recent tax cuts for those of working age, but an increase in wealth taxes may be the path of least resistance, especially if the government has a large majority.”

No matter what the opinion polls say or whether we do herald in a new prime minister, Mehta warns that as an investor, patience is required:

“It takes time to understand what the medium- to long-term impact of an election outcome will be. Whether there is a change in government or a change in government policy, the immediate market reaction is usually knee-jerk and based on limited information. Avoiding such knee-jerk reactions and focusing on the longer term will help insulate investors from potentially value-destructive decisions.

“With the UK market, we have seen over a decade of underperformance relative to global peers. The UK has remained unloved by international investors, and this has left the market attractively valued based on most measures. While an election does create uncertainty, it does not change the fact that UK businesses are cheap and have their place in a diversified portfolio.”

Are UK inflation figures as good as they seem?

At the announcement of the election, the prime minister described inflation as having returned to normal. He spoke in reference to a report from the Office for National Statistics (ONS) that was released shortly before the announcement, which revealed that UK inflation had fallen to 2.3%.

The figures were a noticeable drop from 3.2% in the previous month and edged closer to the Bank of England’s (BoE) 2% target, but there were still a few significant caveats. The markets were expecting the figure to come down to 2.1%, as falling energy prices assisted with the ease of inflationary pressure, so ultimately the 2.3% figure was quite disappointing. Additionally, many commentators are expecting inflation to increase in the second half of the year.

Partner at TwentyFour Asset Management Felipe Villarroel stated:

“We already felt that the BoE was sounding slightly too optimistic and too eager to start cutting rates, even before April’s CPI number. Now, we can only be more convinced than before that the BoE just does not have good enough data to embark on the rate-cutting process. Traders seem to agree, judging by the moves in the gilt market and in the implied probability of a June cut.”

America vs Europe in interest rate cut

Further afield, the US Federal Reserve released minutes from its latest meeting, which enforced the view that they support keeping rates higher for longer – fuelling the prediction that the first interest rate cut is likely to come from Europe. There is a general feeling that the European Central Bank will be the first to take the step, but to what extent they will differ from the American approach is unknown.

TwentyFour Asset Management is a fund manager for St James’s Place.

Wealth Check

Ensuring clarity with your accounts

Making a Will is so important, but making sure that you leave behind clear and accessible records of your digital information is just as important.

The passwords, memberships, photos, documents and online accounts – including financial – that you’ve saved on computers, hard drives or cloud storage all form part of your digital legacy. To ensure that you’re able to leave a clear record of your digital accounts, follow these six easy steps:

  1. Include both your social and financial digital assets in your Will. Record your wishes as to how these digital assets, for example social media accounts, photographs or videos, should be dealt with.
  2. Ensure that your digital account details are securely stored and that you have a hard copy. Back-up personal assets, including items like photographs of family and friends.
  3. Discuss your digital accounts with your family so that they know how to access them when the time is appropriate.
  4. Set up a Power of Attorney and include your key digital asset information, should you need someone to manage your affairs.
  5. If you have an Apple product, it’s a good idea to set up a digital legacy contact in your Apple ID who can access your accounts if needed.
  6. Seek out professional financial advice regarding your digital legacy planning.

The digital world is developing at a rapid rate, and your approach to digital legacy planning needs to keep up with it to ensure that it stays relevant.

A secure digital legacy protects your digital self as thoroughly as you’d take care of your physical self.

Will writing and Powers of Attorney involve the referral to a service which is separate and distinct to those offered by St. James’s Place and are not regulated by the Financial Conduct Authority.

In The Picture

The UK election will dominate headlines, so investors will need to remain patient.

The Last Word

“The future is in your hands… on July 4, you have a choice.”

Sir Keir Starmer, leader of the Labour Party and current favourite to become the next prime minister, reacts to Rishi Sunak’s announcement of a general election.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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SJP approved: 28/05/2024