UK Election Primer

June 03, 2024

UK Election Primer

A UK general election will be held on July 4. Polling stations close at 10pm on the day of the election with exit polls results announced shortly after. In the meantime, political parties are expected to release their manifestos between June 5 and 16 while head-to-head debates between Rishi Sunak and Keir Starmer are scheduled for June 4 and 26.

The latest set of polls (here and here) suggest three realistic election outcomes:

(i) Labour wins outright majority. This is the most likely scenario at over 90% probability. To win an overall majority, a party must secure 326 seats out of 650. Labour's current lead of 21% translates to a median 388 seats or a 62 seats majority. The highest number of seats Labour could win is projected at 497. According to ElectoralCalculus a 5% lead in the polls would get a bare majority while 10% lead would be consistent with a comfortable majority.

Direct comparison of current polling results with what happened in past general elections is misleading in part because of new constituency boundaries. Nevertheless, as a rough guide, Labour’s lead under Tony Blair in 1997 was 13% which resulted in a massive 179 seats majority.

(ii) Labour wins the most seats, but not a majority. Odds this scenario pans out is low at about 6%. The lowest number of seats Labour could win is forecast at 306. If so, Labour would have to form a coalition or govern as a minority government most likely with the Liberal Democrats (LibDem).

Both Labour leader Keir Starmer and LibDem leader Ed Davey have in the past refused to rule out a coalition administration between their two parties. Meanwhile, Starmer said he would never do a deal with the Scottish National Party (SNP) because of a “fundamental disagreement” on Scottish independence.

(iii) Conservatives win the most seats, but not a majority. This is the least likely scenario with less than 1% probability. The lowest and highest number of seats the Conservatives stand to win are 83 and 267, respectively, with the median at 187.

It’s not clear with which party the Conservatives could form a coalition or minority government. What’s virtually certain is that LibDem leader Ed Davey categorically rejected entering an administration with the Conservatives noting “I just want the Tories out”.

As a background, there have been two hung parliaments (no party has a majority) since the turn of the century. Between May 2010 and May 2015, the Conservatives led a coalition government with LibDem. Between June 2017 and December 2019, the Conservatives formed a minority government with the Democratic Unionist Party (DUP) after agreeing to a limited co-operation pact, also known as a confidence and supply agreement.

It’s the NHS, stupid

First, there is fatigue with the Conservatives after 14 years in power. The Tories have consistently trailed in polls by around 20 points since Rishi Sunak took over as prime minister in October 2022. Also, Sunak’s approval rating is low at 31% down from a high of 52% when he was elected despite having restored some sense of economic stability following Liz Truss’s disastrous 44 days in office.

Second, the National Health Services (NHS) is the top issue facing the nation according to the May Ipsos Issues index. Unfortunately, the performance of the NHS under the Conservative Party has been poor as the waiting list for hospital treatment in England rose to a record of nearly 7.8 million in September 2023.

GBP implications

A Labour government would be positive for GBP. The Labour Party under Keir Starmer has moved away from left-leaning economic policies since taking over from Jeremy Corbyn. Indeed, Labour shadow chancellor Rachel Reeves emphasised last week the change in the party to “a party of growth and of enterprise”.

Moreover, Labour leaders pledged to improve relations with the European Union (EU). Starmer is determined to “make Brexit work” but also made it clear there is no plan for the UK to rejoin the single market. Instead, Labour leaders see room for greater cooperation with the EU namely in security and foreign policies.

Beyond the UK political landscape, we are constructive on GBP mostly versus EUR. We estimate long-term fundamental equilibrium for EUR/GBP at around 0.7300, implying a roughly 17% overvaluation relative to the current spot rate. Deeply negative EU-UK real long-term interest rate differentials and the relative monetary policy rate outlook suggest EUR/GBP can correct some of this overvaluation. In our view, the BOE has less scope to cut rates compared to the ECB because UK underlying inflation is higher than in the Eurozone. In April, UK core CPI was 3.9% y/y versus 2.7% in the Eurozone.

Brown Brothers Harriman & Co. (“BBH”) may be used to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2024. All rights reserved.

As of June 15, 2022 Internet Explorer 11 is not supported by BBH.com.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com


captcha image ↻

Type in the word seen on the picture

I am a current investor in another jurisdiction

1 of 2

2 of 2