Given that PM Rishi Sunak this week battled both the rain and D:Ream’s 90’s chart topper ‘things can only get better’ to announce a UK General Election is to be held on 4^th July, I thought this week it would be useful to look back at the impact UK elections have had on investment markets over the past 20 years.

2005 General Election

The 2005 election saw Labour’s Tony Blair secure a third term. Markets responded positively due to the continuity of economic policies, including a commitment to public spending and financial stability. The UK market experienced moderate gains as investor confidence remained steady.

 2010 General Election

The 2010 election resulted in a hung parliament, leading to a coalition between the Conservative Party and the Liberal Democrats. Initially, the uncertainty caused market volatility, with the UK market fluctuating as investors awaited the coalition’s economic strategy. Once the government committed to austerity measures and deficit reduction, markets stabilized, though the austerity approach had mixed long-term effects on economic growth and investor sentiment.

2015 General Election

The Conservative Party’s unexpected majority win in 2015 brought a sense of stability to the markets. The party’s pro-business stance and commitment to reducing the deficit reassured investors, leading to a rise in the UK market. However, looming concerns about the EU referendum began to influence market behaviour.

2016 EU Referendum ‘Brexit’

Although not a general election, the Brexit referendum had a profound impact. The vote to leave the EU caused immediate turmoil in the markets. The pound plummeted to its lowest level against the dollar in over three decades, and the UK market saw significant volatility. Long-term uncertainties about trade, regulation, and economic growth continued to affect investor sentiment.

2017 General Election

Prime Minister Theresa May’s decision to call a snap election backfired, resulting in a hung parliament. The lack of a clear majority created political uncertainty, leading to increased market volatility. The pound and UK stocks experienced fluctuations as investors were wary of the government’s ability to negotiate Brexit effectively.

2019 General Election

The 2019 election saw Boris Johnson’s Conservative Party win a decisive majority, providing clarity on the Brexit process. Markets reacted positively to the reduced uncertainty, with the  UK market and the pound both strengthening. The election outcome was seen as a step towards resolving prolonged Brexit-related uncertainties, boosting investor confidence.

Summary

Over the past 20 years, UK elections have shown that political stability, clear economic policies, and reduced uncertainty are key to positive market reactions. Conversely, hung parliaments and unclear policy directions tend to increase volatility and deter investment. It is apparent from all previous elections that markets will react sometimes more sharply dependent on a result not being as expected (Brexit). However, most elections are minor blips from an investment market point of view and UK finances being constrained limits the impact the next government may have on markets (many will say thankfully).  From an investors viewpoint the bigger event is later this year being the US Presidential election…….