After the UK Prime Minister called a UK general election for 4 July, wealth managers discuss the impact on financial markets.

The UK General Election announcement this week by UK Prime Minister Rishi Sunak has so far caused barely a ripple in financial markets, Chris Beauchamp, chief market analyst at IG Group, a trading platform, said in a note on Thursday.

“Compared to the 2019 election, this round feels much less like a decisive moment in politics. Regardless of the differences between the two sides, the limited economic and financial options for the winner make it hard to promise big changes,” Beauchamp said.

Beauchamp is not alone in his views. “We don’t expect the UK election to be a market-moving event. The opinion polls are strongly skewed towards a victory for Keir Starmer’s Labour,” head of multi asset Trevor Greetham at Royal London Asset Management said.

“Moreover, macroeconomic policy differences are far smaller than they were in 2019 when Boris Johnson squared up against Jeremy Corbyn. This time both parties are pledging to stick to fiscal rules and to stay outside the EU Single Market. Either party would inherit severely strained public finances, limiting their room for manoeuvre,” Greetham added.

Greetham highlighted how things have been getting better in the UK, in some ways. “We’ve just seen both the best quarter-on-quarter GDP and the lowest year-on-year inflation in almost three years. Context is everything, though. In real terms, GDP is still only 1.5 per cent above its pre-pandemic, pre-Brexit level,” Greetham said. “Meanwhile, the price level for consumer goods is a whopping 23 per cent higher. And while investors were at one point expecting at least six rate cuts from the Bank of England this year, inflation has been slow to fall and they now put only a one in 10 chance on a first rate cut in June.” 

For Helen Ball, partner at Sacker & Partners, a UK specialist law firm for pensions and retirement savings, one of the big questions for the pensions industry surrounds the fate of the recently-reformed pensions tax system, as well as many other outstanding proposals, including the Chancellor’s Mansion House reforms. “It is currently unclear just how many of them will survive the forming of a new government, and we await sight of the official manifestos with interest..,” she said.

Beauchamp also thinks that things might change with the manifestos, when at least there could be some stock or sector-specific news.

“Ultimately, what will probably drive UK equity returns is whether a Labour government can improve the investment landscape for UK companies,” Daniel Casali, chief investment strategist at wealth management firm Evelyn Partners, added.

“In the Mais lecture, shadow chancellor Rachel Reeves recognised that unlocking private investment requires institutional reform to encourage UK financial companies to invest in productive assets domestically,” Casali continued. “This will be crucial, as the scrapping of the dividend tax credit by Chancellor Gordon Brown in 1997 led to the share of UK equities owned by pension and insurance companies to fall from around 46 per cent to just 4 per cent currently.” 

“Only time will tell if Labour’s policies succeed in lifting the economy’s growth rate. However, given the poor state of the UK government’s finances and subdued productivity, it will be a hard task for the next government to achieve,” Casali concluded.