UK: July Election Called
In a somewhat surprise announcement, PM Sunak has called a general election for July 4, somewhat earlier than the autumn timetable that had been previously hinted at. He is doing so with his Conservative Party lagging severely in the polls. However, especially after recent local election results, the circa 15 to 20-point lead that the opposition Labour Party currently enjoy (Figure 1) is not enough definitively to secure a parliamentary majority; although we think that the party will do so. The decision to call an election now may (we think) reflects Conservative implicit acceptance that recent better economic news may not persist!
Figure 1: Labour Far Ahead in the Opinion Polls
Source: Politico
Possibly somewhat cynically, Sunak is realizing that in spite of somewhat better economic news seen of late, his party is gaining nothing in terms of opinion polls standings. Indeed, support for the right of centre thinking - usually based around the Conservatives - has haemorrhaged somewhat to the new Reform Party. As likely, Sunak may also realise that the somewhat better news may not persist, not least economically given nascent signs that the labor market is loosening; that BoE Rate cuts may be deferred; while on the broader political front news, immigration flows may take a turn for the worse.
This still fragile economic backdrop and outlook will severely limit the ability of any party to do much post-election, certainly fiscally. As we have suggested, the UK is undertaking fiscal tightening and further tightening measures are due in 2025 irrespective of the election result – Labour is committed to the current fiscal rules, however much they may have shortcomings. Notably, opinion polls are consistently suggesting the public trusts Labour with the economy more than the Conservatives — something that emerged after Sunak's PM predecessor Liz Truss' disastrous but short-lived stay in office. Regardless, whoever wins, a fiscal spending review will be a policy priority to lay out the governemnt expenditure outlook beyond 2025.
Parliament will be officially dissolved next week with party manifestos likely to to follow soon, although they may be short of policy detail and long on aspirations. Importantly for both Labour and the Conservatives will be how the media reacts; will they admit a Labour win is a done deal and or even suggest a change is in the UK’s current best interests.