Beyond Brexit
Tabloid media in the UK has predominantly painted the UK general elections as being almost entirely about the outcome of Brexit. While it is certainly true that the outcome of the election will play a big part in deciding how, or even, if, Brexit is delivered - it is important for investors to look beyond Brexit with a view to understanding the implications for the UK economy as a result of who wins the election. With a view to building some perspective on this issue it is important to consider the manifestos of the two main parties, the Conservative party and the Labour party. Both parties have taken dramatically different stances on both Brexit and a number of other key issues which we will now break down, starting with the Conservative party first.
Key Aspects of the Conservative Party Manifesto
On Brexit
First and foremost, the Conservative party under PM Johnson has vowed to “Get Brexit Done”. Johnson wants to go ahead and secure parliamentary backing for his Brexit deal as quickly as possible with a view to the UK leaving the EU by January 31st 2020 at the latest. Johnson has also said that the transition period, during which time the UK and the EU will negotiate a trade deal, will not be extended beyond the current December 2020 date.
While the market will likely benefit in the short term from more definitive action on Brexit, there are tail-risks for the Pound later into next year if trade talks do not seem to be progressing fast enough. Either the transition deadline will need to be extended or Johnson will abandon trade talks, both of which would likely be negative for the Pound in the longer term.
On Spending & Taxation
There were no fireworks in the manifesto when it comes to the area of spending and taxation. Johnson has promised to increase spending along with raising taxes slightly. Although the adjustments are intentionally far less than the figures being run by Labour and the Lib Dems. Johnson’s message here was one of keeping a “tight ship”. The overall level of spending being proposed at the moment amounts to around 1% of the UK economy.
On Pensions
Johnson has pledged to keep the current “triple lock” active. This means that pensions will rise each year by whichever is highest among the annual CPI reading, wage growth or 2.5%. The triple lock has come under growing criticism recently and has been deemed by many as unaffordable. However, Johnson has clearly learned from Theresa May’s mistakes. May proposed scrapping the triple lock in 2017 though had to abandon the proposal in order to get backing from the DUP for a coalition government.
On Immigration
This time around the Conservative party is proposing a points-based immigration system. Similar to that in place in Australia, Johnson says that such a system would favour “the brightest and best” coming to the country. In 2017, the Conservative party was proposing a reduction in immigration to less than 100,000 annually. However, this pan drew much criticism and was ultimately unsuccessful. In terms of the economic impact, although Johnson would argue that a reduction in low-skilled and unskilled migrants coming to the country would put less pressure on public services, there is also a significant portion of the economy (and public services in particular) which run on migrant labour.
On The Climate
Polling shows that the issue of how to combat climate change has risen to take on a level of importance not seen before in UK elections. The Conservative party announced earlier in the year a target of cutting emissions to zero by 2050. While this is clearly a headline-grabbing announcement, interim emissions targets are already falling short and man scientists are not arguing that the repair needs to take place far sooner than 2050.
Final Thoughts
In all, the Conservative party manifesto promises to essentially maintain the status quo while working on small improvements to help drive the UK economy forward and repair the damage done form the uncertainty over Brexit which has hindered the economy in recent years.
What will be key to determining the impact on the UK economy will be the progress of trade negotiations next year. A recent think-tank report has warned that the cost of Johnson’s current deal to the UK economy will be £20 billion a year. Worryingly, the report warns that this figure could rise to £28 billion if negotiations fail and the UK leaves the EU without a trade deal in place, this could rise to £28 billion per year.
In the near term, a Conservative party win will be seen as a positive for the British Pound. Investors will be relieved that the UK will avoid a no-deal Brexit, entering into a transition phase to allow for a smooth departure. Furthermore, with the Conservative party in power, investors know the UK will remain a business-friendly environment which will continue to attract foreign investment, keeping the Pound well supported. If trade talks progress will next year, the Pound should stay well bid. A reversal lower is only likely if negotiations are seen stalling and the prospect of leaving the EU without a trade deal grows more likely.
Tomorrow, we will walk through the Labour party manifesto and the potential implications for the UK economy if it wins the elections.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!