Market Implications of May’s UK General Election

Exploring, the Market, Implications, of May’s, UK, General Election, Conservative, Liberal Democrats, Fundamental Analysis, fx trader, for

20 Apr 2015

There are now less than two months to the general election here in the UK. After five years under the rule of the Conservative and Liberal Democrats coalition, voters will have the opportunity to voice their opinions at the ballot box and to bring about a change in government.

The current coalition is probably viewed by most voters as having been long on rhetoric and short on action. This is particularly true in the early days of the parliament where policy changes were announced, modified and then hastily withdrawn on a regular basis. These were the growing pains of two very different parties learning to push in the same direction, rather than in opposition to each other.

On reflection, the coalition’s overall economic performance since 2010 can be considered as moderately good. They can point to a strong UK economy, which has one of the best growth rates amongst any developed nation. In fact, the UK currently places joint first with the USA amongst the G7 economies in terms annual GDP growth (both have a GDP annual growth rate of 2.7%). Unemployment is also falling, while there has been some reduction in the levels of government spending and deficits.

As the Conservatives and Liberal Democrats will campaign as individual parties in May’s general election, it will be interesting to see how much credit each party claims for this economic success. The Conservatives have taken an early lead here, perhaps not surprisingly given that the Chancellor George Osborne is one of their own.

Analysing the results from polls on voting intentions, we find that the two main UK parties - the Conservatives and Labour - are running neck and neck. The Conservatives have a one point lead at 33.33%, when averaged out over the last three opinion polls, against Labour’s 32.33% showing.

However, as we can see from Chart A, this lead has been very erratic since May 2014. When the polling data is averaged out, the Conservatives have been approximately 2.5% behind Labour over this time frame.