UK Election Impact on Financial Markets: What You Need to Know

    Shaun Wood
    4th July 2024
    Home » Blog Posts » UK Election Impact on Financial Markets: What You Need to Know

    With the election underway, it’s important to understand its potential impact on financial markets. Here’s a concise analysis of what to expect in the short and long term.

    UK Equities in a Global Context
    UK equities represent just 3.8% of the MSCI Worldwide equity index. This means that, on a global scale, the UK market has a relatively minor influence. Therefore, local political developments are less likely to cause significant global market shifts.
    Market Expectations for a Labour Win
    The prospect of a Labour victory appears to be largely priced into the markets. Investors are now more focused on the margin of this win rather than its occurrence. This pre-emptive pricing suggests that drastic market reactions are unlikely immediately following the election.
    Short-Term Market Stability
    In the immediate term, we do not foresee major volatility in gilts, equities, or the GBP (£). The markets tend to stabilise quickly after elections as uncertainties are resolved, leading to a more predictable short-term outlook.
    Long-Term View on UK Equities
    Looking ahead, we remain cautiously optimistic about UK equities. This optimism is driven by economic fundamentals rather than political promises.
    Revaluation Potential
    The UK market is currently undervalued compared to global price-to-earnings ratios, presenting opportunities for future growth as the market corrects over time.
    Interest Rate Cuts
    We anticipate one or two interest rate cuts before year-end, which should stimulate capital flows into both listed companies and SMEs. Lower gilt yields are also expected, benefiting cautious investors.
    While the election will have some immediate effects, the long-term outlook for UK equities is positive due to underlying economic factors.

    Should you have any queries regarding the election, our portfolio allocation or performance, please do not hesitate to get in touch with your adviser.

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