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Election Fever

 4 min read / 

With the elections in Greece creating an air of uncertainty in the European markets, further antagonised by the European Central Bank’s implementation of Quantitative Easing, it has been interesting to analyse how the UK general election in May will affect the market. The disintegration of traditional British politics, portrayed by the rise of UKIP and increasing political apathy, has made the coming election the most unpredictable in decades.  With shares in two of the UK’s biggest energy providers falling after Labour announced a policy forcing companies to pass on the benefits of cheaper crude oil to customers, the UK stock market has already been influenced by the general election. On January 12th, both the SSE and Centrica led the main London index lower, losing 2.2 per cent and 0.9 per cent respectively. This was a result of Ed Miliband, Leader of the Labour party, pledging to give industry regulators the power to cut bills.

Although the two main parties remain in the lead, they both lack a majority; the Conservative party and the Labour party are struggling to gather 65 per cent of the vote. It is likely that the May election will see the end of the two-party system. The Eurosceptic, anti-immigration, UK Independence party (UKIP) has inflicted much damage on the main parties, especially the Conservatives. Likewise, the rise of the Scottish National party (SNP) and a burgeoning Green party has led to a fall in support for Labour. With an expected loss of half of the 57 seats it won in the 2010 general elections; it is questionable whether the Liberal Democrat party will maintain its position as what some consider the third main party.

Discussions surrounding the economy have always been the main drivers around the outcome of elections. Although the UK’s economic recovery and low unemployment since the previous general election has been impressive, many have not felt the benefits of the economic recovery, rather they have been more affected by the spending cuts. With this in mind, neither of the main parties anticipates an outright majority.  The Conservatives have already prepared for a possible second general election and there have been talks regarding which parties it could form a multi-party coalition with. Yet, to prevent UKIP from inflicting more damage, the Conservatives aim to avoid the subjects of Europe and immigration – UKIP’s driving topics – and focus instead on the economy. David Cameron will commit a future Conservative government to tax cut, thus gaining votes from those whole will gain the most – middle earners. However, Labour claims that the public is prepared to accept some tax rises to fund public services.

On the subject of economic policies, the attracting thing about Labour is that its economic plan for the 2015 general election is perfectly sensible. Although planning to borrow more than the Tories, there is nothing reckless in seeking to eliminate the current budget deficit by 2020 while reducing public debt. Taking a more realistic approach, the Tories will continue with cuts in public services; however, Labour’s policies cannot be seen as inferior. Ed Miliband has kept quiet what taxes will be raised and which areas of public spending will be cut further; nevertheless, by focusing on the current budget, Labour is keeping the option of using extremely low government borrowing costs for investment projects.

Usually businesses in the UK are accustomed to three possible outcomes, yet with the opinion polls suggesting that parties previously seen as irrelevant may hold the balance of power, these parties’ policies have to be scrutinised. For example, it is possible UKIP can force the Tories into a harder stance against immigration and the EU. The Greens have outlined the City of London would cease to be a major global financial centre and growth would no longer be an economic target. The SNP, dedicated to the break-up of the UK, also holds influence over decisions made by businesses.

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