Countdown to the UK election

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The knives will come out after the Autumn Statement and electoral uncertainty could lead to market volatility. But where there is uncertainty there is opportunity for those who look through the noise and keep a cool and rational head, says Guy Stephens, director and member of the board at Rowan Dartington.

This week may well fire the starting pistol for the next election. The Autumn Statement will likely deliver the ammunition for the other political parties to attack the incumbent government for mismanagement of the economy and the budget deficit. George Osborne is facing his toughest challenge as chancellor of the Exchequer and whatever he delivers at the dispatch box on Wednesday will define the battle ground ahead of the next election.

His forecasts for this fiscal year will need to be pretty accurate ahead of his March Budget and so there can be no forward manipulation or smoke and mirrors as the election is most likely in May 2015. This week has already seen a good news media release in respect of road building projects which will go down well with the car-driving electorate and construction firms and their employees. The additional £2bn for the NHS is also more good news and goes some way to countering the opposition argument that the Tories cut taxes and starve public services of funds.

However, with the deficit forecast to increase from last year to around £100bn and embarrassingly above the targets only set in March of this year, there will be howls of protest that this has been a recovery for the wealthy and that the jobs which have been created have been low paid, leading to disappointing tax receipts. It then follows that the average earner is therefore feeling worse off and the only beneficiaries of the economic recovery have been asset rich investors and the corporate elite as stock markets, property prices and company profits have expanded without a commensurate increase in salaries and tax receipts.

It is a strong argument and Mr Osborne will need to announce something rather special followed up by further creditability enhancing announcements in March if the Government are to remain in power. The alternatives for the electorate are not that appealing either and so we could once more have a hung parliament and a new coalition.  Up to now, UK electoral uncertainty has not been a perceived risk for the markets but if a change to the incumbent looks like a greater certainty after Wednesday, then that could lead to more volatility for the next six months.

The Black Friday Thanksgiving retailing bonanza of last week is being interpreted in many ways and is not conclusive at the moment. Some are saying that the reason people are prepared to scuffle for the discounted products is because their finances are so tight and they are struggling to afford the desired items for Christmas. Others view it as just plain greed and our shopping habits are changing as retailers exploit another imported idea.

Whatever the answer is, this week sees a lot of economic data releases and these along with the Autumn Statement will reveal just how confident the voting consumer is feeling. Brace yourself for the political jousting and media analysis that will dominate the second half of this week. It won’t be pretty as the knives will definitely come out and then we have to endure another six months of it. Looking through the noise to the markets will be crucial to keeping a cool and rational head as there are always opportunities when uncertainty strikes.


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