Prime minister Rishi Sunak (pictured) has confirmed a snap general election will take place on 4 July.
In a speech outside Downing Street in the pouring rain, Sunak said that the UK had fought through some of its darkest days since the second world war over the last five years.
Following news that inflation had eased to 2.3% earlier in the day, he added that “economic stability is the bedrock of any future success”.
Reacting to the announcement, Hargreaves Lansdown head of money and markets Susannah Streeter said: ‘’Although some of the more severe headwinds have eased, the Conservatives will go into this election facing an electorate still struggling with the cost-of-living,”
“Inflation has come down towards target, but it has disappointingly missed forecasts, which means prospects for an interest rate cut have been pushed further into the distance. House prices have started creeping up again, amid supply shortages in key parts of the country, which means that getting onto the ladder is still unaffordable for many young people.
“This is while others face the daunting prospect of remortgaging on much higher rates and tenants are watching rents climb at super painful rates. Growth forecasts have been upgraded for the UK this year by the IMF this week, from 0.5 to 0.7%, but it’s hardly shooting the lights out.”
Looking ahead to some of the economic policies that could form key talking points ahead of 4 July, Streeter added that current chancellor Jeremy Hunt has pledged to cut personal taxes further, with more tinkering to National Insurance looking likely to try and stimulate growth.
“Until we see the detail in the manifestos it’s difficult to analyse specific effects on sectors of the economy. There are some broadbrush indications in Labour’s pledges which may weigh on or benefit certain industries. Labour’s determination to be seen as economically credible may limit its ability to make immediate inroads into fulfilling its other central pledge of saving the NHS. Kier Starmer has vowed to abide by tough spending rules to be seen as responsible with the country’s financial health.
“But at the same time, there is a plan to cut NHS waiting times and deliver 40,000 more appointments by paying staff overtime. It’s far from clear whether cracking down on tax avoidance and non-doms will provide the budget needed for this.”
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“In some ways things are getting better in the UK,” added Royal London Asset Management’s head of multi asset Trevor Greetham. “We’ve just seen both the best quarter-on-quarter GDP and the lowest year-on-year inflation in almost three years. Context is everything, though. In real terms, GDP is still only 1.5% above its pre-pandemic, pre-Brexit level.
“Meanwhile, the price level for consumer goods is a whopping 23% higher. And while investors were at one point expecting at least six rate cuts from the Bank of England this year, inflation has been slow to fall and they now put only a 1 in 10 chance on a first rate cut in June.
“Against this backdrop, and absent major surprises, we don’t expect the UK election to be a market moving event. The opinion polls are strongly skewed towards a victory for Keir Starmer’s Labour. Moreover, macro-economic policy differences are far smaller than they were in 2019 when Boris Johnson squared up against Jeremy Corbyn. This time both parties are pledging to stick to fiscal rules and to stay outside the EU Single Market. Either party would inherit severely strained public finances, limiting their room for manoeuvre.”
UK ISA
Back in March, chancellor Jeremy Hunt proposed the launch of a UK ISA as part of the Spring budget. While the policy is unlikely to be the main motivator for voters at the ballot box in July, ISA reform continues to be a point of contention both between the two major political parties and in the investment industry.
Tom Selby, director of public policy at AJ Bell said: “The proposed UK ISA is a deeply flawed gimmick that will not achieve its stated aim of reviving UK capital markets. What’s more, it will add complexity to the ISA landscape, something AJ Bell research shows puts people off using the product. Regardless of who triumphs in the general election, the UK ISA should be confined to the policy dustbin, with focus instead trained on simplification and increasing the ISA allowance. This would be much more likely to boost UK Plc over the long-term.
“Labour has already said it will look to simplify the ISA landscape to make it as easy as possible for people to invest if it is elected to power. This is something that AJ Bell has campaigned for consistently over a number of years, calling for the creation of a single ‘One ISA’ product incorporating the best features of the existing six ISAs. No sensible person designing a savings system from scratch would propose the plethora of different ISAs we have on offer today.”
