Have you noticed the recent increase of interest in UK politics of late? The Scottish independence vote and the rise of UKIP have combined to make the forthcoming election the most interesting and unpredictable since I first became a voter.
Our ‘first past the post’ electoral system has forced the (hitherto) two main parties to fight over the so-called centre ground. Mr Cameron demonstrates his social democrat credentials by hugging hoodies, expressing concern about global warming, promoting gay marriage and protecting spending on overseas aid at the expense of the armed forces. Mr Milliband and his party discover new concern about immigrant’s claims on the public purse. But the rise and rise of UKIP is only part of the reason.
The English have been remarkably sanguine about the obvious and unjustified inequalities relating to the Barnet formula that perpetuates the shovelling of resources from England to Scotland, and the Midlothian issue which means that in many policy areas Scottish MP’s vote on purely English issues while English MP’s have no say on what happens in Scotland. But now this is changing. More autonomy north of the border means that even the more level-headed labour politicians now acknowledge that something must be done, particularly as, barring a rapprochement between Messrs Cameron and Farage the most likely outcome next May must be a coalition between Labour and the Scottish Nationalists. Can the English really be expected to stomach such an unfair interpretation of democracy? I think not.
You might ask why your financial correspondent is meandering into a political diatribe, but such an uncertain outcome isn’t good for business, the currency, domestic investment or employment. History has shown that the UK’s economy and financial markets have typically faired better under a Conservative administration, but this time the result won’t be binary – Labour or Tory. The range and combinations of potential outcomes are many and varied, as are their consequences. The boundary arithmetic shows a Conservative majority to be one of the least likely outcomes, even if Mr Cameron gathers the largest proportion of our votes.
George Osborne’s autumn statement has given us a taste of the battle ground, although the pre-election March budget is when we might expect rabbits to emerge from hats. We will hear Mr Clegg distancing himself from his horrid coalition partners, Mr Milliband being quietly ignored as he and his shadow chancellor tell us that the recovery exists only on the Tories’ imaginations; and Mr Cameron trying to be all things for all people – retaining his new-found socialist credentials while by some slight of hand wresting back UKIP supporters with tough, right wing talk about Europe and immigration. Same old same old? Actually no.
Whatever ones view on Europe, our global trading partners won’t like the uncertainty of an ‘in/out’ vote in 2017, so this uncertainty can only be removed by a majority or coalition Labour government. But talk of mansion taxes and a return to old 1970’s-style socialism under Balls isn’t going to help much either. So is the economic recovery at risk either way? Measures to boost Continental European economies and continued growth in the US could prevent the world economy stalling, but unless and until the outcome of the May election becomes clearer, after the traditional Christmas rally don’t expect fireworks from the UK stock market until the second half of 2015, if at all.
Interest rates won’t start to rise until after next May – and even then not much. Quite a dull outlook I hear you say, and even the emerging economies and stock markets are well off the boil. So where do we go for joy? There is only one thing that I know for an absolute certain – the conclusions from this analysis will in all likelihood be entirely wrong. It is almost a truism to say that when no surprises are expected, good or bad, we always get them – and the volatility in stock markets that inevitably follows. Apart from the upcoming election, look at the number of current political and economic uncertainties – Ukraine, Syria, slowing Chinese growth, Ebola, Eurozone and Japanese recessions, a lame duck American administration– it goes on and on. It all sounds grim, but if some of these issues are resolved it could be very good for stock markets. And remember the oil price – if it stays low the UK consumer might at last feel she has more money to spend!
Investors hate uncertainty, but as these uncertainties are removed and outcomes become known, the prospects for global growth and prosperity will become clearer and markets could continue on their merry way. On balance 2015 is likely to be a volatile year but if I was a betting man I’d say all will end well, or if not well, OK. So let’s stick to quality investments that can survive the inevitable squalls, and resist the temptation to panic on the bad days!