Britain is expected to hold a general election in the second half of 2024. Following a number of by-election defeats and with the Tories lagging behind Labour in the polls, Prime Minister Rishi Sunak and his party are facing challenging times ahead.
Former Cabinet Minister, Sir Simon Clarke has called on Rishi Sunak to quit and warned that he is “leading the Conservatives into an election where we will be massacred.” Clark’s intervention reflects the current frustration among Tories, but as senior Conservative Tobias Ellwood explained, such intervention is “reckless” and that the voters want “unity”. Election uncertainty could also weigh on the British currency, but some economists have noted that, no matter who wins, no major market movements are expected.
When will the election take place?
The last possible date for a general election is the 28th of January 2025, but Prime Minister Rishi Sunak told reporters that 2024 would be an election year. In January he stated that his “working assumption is we will have a general election in the second half of this year.” This has increased expectations for a vote in October or November, instead of May, which was the likely time for an earlier general election.
The Conservative party is far behind the main opposition Labour party in the polls. The Telegraph published a YouGov survey of about 14,000 people which showed that Labour could win 385 parliamentary seats, with the Conservatives on track to keep only 169 seats.
Many commentators have noted that Sunak’s approval ratings have been affected by his refusal to call for a Gaza ceasefire and the decision to join the United States in attacking Yemen’s Houthis.
As it stands, polls show that Labour is in the lead, but the gap could narrow between now and polling day. In fact, previous elections demonstrate this, as the governing party has always managed to close the gap or even reverse it even when the main opposition party was ahead in the polls. However, the concern is that no government has lagged so far behind and gone on to win.
Will Sterling run into election hurdles?
The vote’s timing could affect Sterling by impacting on the timing of rate cuts as the BoE would not want to take action during election time to avoid influencing sentiment. Rabobank’s Jane Foley believes that the pound will remain unmoved. It is true that the pound has had a rollercoaster ride due to political developments in the recent years. From Brexit to former PM Boris Johnson’s political troubles, the UK currency was not without its challenges. In September 2022, former PM Liz Truss’s mini budget caused political and economic chaos resulting in the freefall of the gilt market. However, ahead of this year’s UK general election, GBP remains unmoved and is the second best performing G10 currency in the year to date, after a great performance in 2023.
As Foley noted, the latest Tory infighting “has not undermined the view that Chancellor Hunt is a safe pair of hands.” She also pointed out that for many investors, “it would appear that the Tories have already lost the election.” The weak UK finances also mean that whoever wins the election will be forced to be extra cautious with the budget. From the market’s perspective, this means that the UK election “could be relatively dull.”
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics has stated that markets tend to favour Tory governments for their business-friendly policies, but he also expects a Labour win to create a less volatile market response. The reason is that Labour is also proposing strict fiscal rules as the Tories, while sentiment around the Conservatives’ treatment of such issues as the economy and Brexit, has led many voters to believe that Labour will be better prepared to deal with economic challenges. Echoing Rabobank’s viewpoint, Tombs emphasised that no major market movements are anticipated on either side of the upcoming election.