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After UK Prime Minister Rishi Sunak’s rain-soaked general election announcement on Wednesday, financial services have begun considering the likely outcome and market impact, with one bank saying it will be ‘marginal’.
Swiss private bank Julius Baer has, like many, already called the July 4 election in favour of the Labour Party, which will make current leader of the opposition Sir Keir Starmer the next Prime Minister.
The timing has been a shock for many, as Sunak’s incumbent Conservative government is 20 points behind in the polls.
In a research update, the bank said the timing is an attempt to capitalise on the recent drop in inflation and the emerging economic recovery and to avoid heightened scrutiny during the autumn budget period. But it was doubtful the gamble would succeed, following discontent with Conservative policy, the loss of 21 Tory seats in the by-elections and a defection by one MP to Labour.
This followed Brexit impacts, pandemic policies and the resulting cost-of-living crisis owing to surging inflation and the ill-fated fiscal plans of the short-lived Truss government.
However, Julius Baer’s economic researcher David A Meier remained unconcerned over the market impact.
“The limited fiscal headroom, also for a Labour government, and the apparent indifference of markets to this potential political change should keep the market impact marginal,” he said.
“A new leadership would have to operate under limited fiscal headroom, meaning that there is little leeway for expansive fiscal policy.”
Markets appear to be open to a shift to Labour after the Conservative Party failed to deliver convincingly on the fiscal policy front, Meier concluded.
(Writing by Imogen Lillywhite; editing by Bindu Rai)
