UK Election Closes In

Election campaigning is in full swing as we approach the general election on 12th December. There are fanciful promises being made by all sides of the political spectrum, with large fiscal spending forming the main party pledges. Despite the Conservatives polling a ten point lead over the Labour party, we still believe that the outcome of this election is uncertain and it could be closer than many are predicting.

Across the Atlantic, the US economy is still powering ahead with US GDP beating analysts expectations and producing stellar results. Consequently, the US stock market has been reaching all time highs which has been positive for global investors.


The snap poll called on 12th December is likely to be one of the most important decisions the UK electorate will make for some time. The result will determine our future relationship with the European Union and it will establish a new domestic policy of fiscal spending. The question remains; what is the most likely outcome of this election? The polls suggest that Boris Johnson has a healthy double digit lead ahead of Jeremy Corbyn, albeit this same trend was true when Theresa May called her election back in 2017 and the Conservatives ended up with a lead of 2.5%. Polls are becoming less accurate as research has suggested that, with a dominant culture of intolerance towards rebellious opinion, some individuals are less inclined to express their true opinion when questioned. Self-censorship seems to have been a common theme across the Western world and erroneous polling has been a consistent feature of recent elections, such as the EU referendum in 2016, Donald Trump’s victory as US President and last UK general election in 2017.

This election was caused by the impasse in Parliament regarding the UK’s future relationship with the European Union. The key question, which remains unanswered, is whether the electorate will consider this election as a quasi EU referendum and therefore vote on their most favourable Brexit outcome; or whether some of the other party pledges will overcome the public opinion on Brexit and entice voters to vote on future domestic policy. The Conservatives are focused on the former, concentrating their efforts primarily on their pledge of “Getting Brexit Done”, whereas the Labour party have proposed a radical manifesto of huge public spending, nationalisation and monumental overhaul of the UK tax system. “Brexit” appears 61 times in a 64 page Conservative manifesto whereas the 107 page Labour manifesto mentions this word a mere 21 times. This illustrates the “Brexit” emphasis of each party. The Liberal Democrats are also presenting the option of a complete reversal of the EU Referendum result by implementing a revocation of Article 50 if elected. However, the current political system of First Past the Post does not favour smaller parties and, currently, it does not appear likely that Jo Swinson’s candidates will have a meaningful impact on 12th December.

The outcome is ambiguous, primarily because this election is likely to be based on a multitude of factors with each age group and demographic having their own personal priorities. A Conservative majority has been suggested as the lowest risk outcome for the UK economy as this should provide some short-term continuity for businesses and the tax system. A Labour majority will cause instability for sterling and domestically focused companies as the economy will be completely overhauled. We will be watching the outcome closely and are hopeful of a stable outcome.


Much of global market sentiment in 2019 has been whimsically determined by whether the US and China can find a mutual agreement in a trade war which began in July 2018. Many have argued that the trade war is a political game which will allow Donald Trump to eventually claim a “moral and economic” victory against China and therefore publicise this to the US electorate to bolster his support for the November 2020 election. At present, the aggressive rhetoric we have seen from both parties has been toned down and they are “close to finalising some sections” of an interim agreement to ease trade tensions between the two countries. There is still hope that a preliminary deal can be agreed which will heighten investor confidence.

The US economy continues to outpace forecasts with consumer spending and private investment bolstering third quarter growth. This has helped to allay concerns about the health of the US economy, particularly as this is being tested by Trump’s trade war with China. US stock markets have reached record highs and, if this continues into 2020, the US president will use this political ammunition in an attempt to be re-elected in 2020. The current impeachment proceedings against him are unlikely to be successful as the Republicans have a majority in the Senate.


The global trade slowdown has hit the European Union the hardest, latest figures have illustrated. Uncertainty over the UK’s exit from the trading bloc and Germany’s sluggish economy has deepened economic frailty caused by the US-China trade war. Exports and imports declined across all major EU countries, with falls of 3.6% and 1.7% respectively in France, and of 0.4% and 1.8% in Germany. In Italy, trade continued to fall for a sixth straight quarter. This will put immediate pressure on Christine Lagarde, who has now taken her role as head of the European Central Bank.


China’s slowest GDP growth in nearly three decades highlights how the trade war has dampened the economy. Weaker economic growth has prompted the Chinese government to initiate a series of stimulus measures, as well as discussions around potential tax cuts. We still believe that the most viable solution for growth in this area is for China to make an agreement with the US to remove the restrictive trade barriers and reopen opportunities. This is looking more likely but the conclusion remains ambiguous.


Macro events such as US-China trade negotiations, the UK election and the slowdown in the Eurozone are all influencing the direction of markets. The US-China talks continue to be protracted but we are hopeful that both world leaders will come to an amicable agreement to provide more certainty within the world economy. Despite the Federal Reserve dampening their outlook on domestic growth, the US is powering ahead when compared with other developed economies and we are seeing the economy continue to defy expectations. The UK market will remain uncertain until the Brexit ambiguity has been resolved. The outlook for Europe is negative at present with Brexit uncertainty and US-China trade tensions being clear factors affecting this, which we believe will continue in the short term. We continue to favour fund managers that have a flexible, active approach, with a global remit, so they can asset allocate across the entire investment world (as we believe diversification is key). However, most importantly we will endeavour, on your behalf, to identify fund managers that invest in underleveraged companies with strong balance sheets as we believe that highly indebted companies will be punished, if there are any unexpected events.

Please note: The opinions expressed in this update are those of A&J Wealth Management Limited only, as at 2nd December 2019, and are subject to change. The update is for information purposes only. Source: Financial Times.

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