“We know many investors are nervous of the impact political developments could have on their finances. Things will change after December 12th, however we think it unlikely investors will see significant rule changes in the days straight after the election result. Both the Conservatives and Labour have indicated plans to hold a Budget in February 2020, so we can hopefully head into the Christmas period without having to worry about any immediate changes to tax rules, allowances or thresholds. If you do want to try and pre-empt any changes, the most obvious step is to make sure you have used all available ISA allowances.”
There are three likely scenarios (with a possible but less likely fourth outcome).
According to the current polling data, the most likely outcome is a Conservative majority; perhaps not a large one but enough to form a working government.
Conservative win
From investors’ perspective, this is the result most likely to calm the markets, at least in part because the sequence of subsequent events is clearest. We may see the pound rise on foreign exchange markets, depending on the extent to which this result is priced in ahead of the news.
Once we’ve got past the immediate aftermath of the results and a full head count has been taken, Prime Minister Johnson would appoint his government (we already know Sajid Javid will stay on as Chancellor, assuming he is re-elected; no other intentions regarding government positions have been made public). A Queen’s speech will be delivered this side of Christmas, probably the 19th, though possibly not by the Queen herself. Whatever else is included in the legislative programme, the first priority will be to pass the Withdrawal Agreement Bill, formally confirming the exit process from the EU. It is currently expected this process will conclude by the end of 2020, with either a negotiated trade deal with the EU, or a no-deal exit from the EU.
We will get a Budget in February, setting out the government’s fiscal plans, which would be likely to include targeted tax cuts, such as the promised increase in the National Insurance threshold to £9,500, as well as the government’s spending plans.
The trade deal negotiation process will have to proceed at a gallop, if it is to be concluded by the end of 2020; however it is worth remembering it will be in no one’s interests for the talks to fail. A complication is any extension to the transition period would have to be requested by 1 July 2020.
Conservatives fall just short of a majority
The winning line for Boris Johnson is theoretically 323 seats; above this number and he has a majority, below it and he loses. If he lands around or just below this number though, he may choose not to concede defeat and instead attempt to press on as a minority government. Here, the number of Labour seats will matter too: If Labour has also performed poorly and the minor parties have done well, there may be scope for the Conservatives to limp on, hoping to do a deal on Brexit. It is unlikely a minority Conservative government could endure for long, so this result would open the very real possibility of another General Election in 2020, as well as probable uncertainty regarding the outcome of Brexit.
The timing of everything would become more uncertain as every step would require negotiation and horse-trading. The Queen’s speech setting out a legislative programme could be pushed back, as all attention would be on the approaching cliff-edge of 31st January and the prospect, once again of crashing out of the EU without a deal.
This uncertainty would be likely to cause nervousness and increased volatility in asset prices and currency exchanges.
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