A decisive General Election in the UK has finally delivered clarity for the country and the markets. The overwhelming success of the Conservative party has shown the strength of feeling for Brexit, and resulted in the first majority government since 2017.
The situation creates a very different feel in the UK, and notably for the economy. The ‘new dawn’ is likely to kick-start markets after period of extreme uncertainty. For companies there is now the opportunity to plan for the future and invest, safe in the knowledge that Brexit will go ahead – and quickly, with talk of 31st January 2020 as the new date being worked towards. Trade negotiations will of course continue, and though there could be issues during the exit period and as new trade deals are established, the log-jam has passed in terms of the country’s direction and focus.
With the Conservative government strongly committed to boosting the economy, a budget will follow next week. This announcement will unveil more detailed plans for the £13.8 billion spend across all government departments by 2021. More information will also emerge about the tax cuts to business rates, research and development tax and employers’ national insurance contributions.
Some immediate market reaction is already being seen. Significantly Sterling has surged and further gains are likely to develop over the medium term, perhaps even to the peak of the April 2018 high when it hit $1.42. The FTSE 100 should also now make gains, and it is likely that the domestically focused FTSE-250 will also perform strongly with record highs already being seen early this morning.
The coming days and weeks will help determine whether this initial reaction will translate into further recovery into 2020.
Julian Broom, Chief Investment Officer