With a clear majority win for the Conservatives, the economy finally looks set to receive some much-needed stability and clarity on what we can expect to happen next.
Below is a summary of some of the predictions of what the Conservative victory will mean for markets, Brexit and the EU.
With the Conservatives acquiring a large majority, it is expected that the UK will leave the EU as planned on 31 January 2020 under the existing withdrawal agreement. While there is still scope for a potential two-year extension, Boris Johnson has declared he will not extend beyond December 2020, however, as is common with politics, nothing can be ruled out entirely.
Following the win announcement, UK shares and the pound reacted positively. It is thought that the increased levels of stability will now help the UK market become investable again, particularly to those who had previously shied away. Domestically focused sectors, such as stocks, banks, utilities, retailers and housebuilders, are amongst those experiencing the strongest post-election gains.
While the pound has strengthened by about 8-10% since its lows in August, it is still close to the bottom of its 40-year average trading range against the dollar. However, this low valuation compared to other markets means there are some real valuation opportunities for long-term investors.
As mentioned in their manifesto, the Conservatives have promised increased spending, albeit only 0.3% above current levels. Public spending is also set to rise by 10%. Due to concerns over the global growth outlook, interest rates also look set to hold firm in 2020, although if the anticipated global growth materialises, rates could rise in 2021.
While much of the focus has been on the election, other global factors have been affecting markets. With signs of progress on agreeing a 50% reduction to the existing US and China tariffs, and new proposed tariffs being scrapped, it is thought the news could help boost UK shares and create a better environment for global trade.
Experts predict that trade between the UK and the EU will become less volatile. Due to the majority win, Boris Johnson can now proceed to make a deal without being reliant on coalition partners or factions within his own party.
The topic of Scottish independence also continues to play its part in the UK’s role within the EU; with Scotland in favour of remaining, and the prospect of another referendum on independence being called, it will be interesting to see what the Prime Minister can do to convince them to remain part of the UK.
As a reminder, from a financial planning viewpoint, the Conservatives’ main manifesto proposals were:
Social Security, Housing
The February Budget is also likely to see changes to inheritance tax (IHT) stemming from the Office of Tax Simplification (OTS) review of earlier this year – there was no comment on IHT in the Conservative manifesto.
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