UK: A tale of elections, landslides and growth - HSBC

Liz Martins, UK Economist at HSBC, tries to analyse whether previous elections – particularly those with landslide results − have boosted economic activity in the UK and suggests that investment has sometimes done better with strong government but the same does not appear to be true for the consumer

Key Quotes

“May shoots for a landslide

The polls suggest that Theresa May is heading for the biggest majority since 2001.”

“Investor confidence may improve at the margins

There have been occasions in the past where investment growth has picked up following elections – most notably following the second 1974 election in which Harold Wilson went from a minority government to a majority, and in 1997, following the landslide Labour victory under Tony Blair. So, there may be a case for the investment outlook improving if Theresa May does as well as she is projected to do. 

But both the examples above are of Labour governments with big public spending programmes: it is not clear that private investment responded in the same way. In one election with several parallels to this year’s, the 1983 re-election of Margaret Thatcher – there was no such post-election shot in the arm for investment.” 

“For consumers, it’s about real incomes, not politics 

We cannot identify any obvious post-election boosts to consumer confidence. Indeed, mapping election dates over consumer confidence, it is striking how many elections have come at the top of the consumer cycle – perhaps reflecting canny governments choosing their moments wisely. For consumers, real income growth is a more important driver of sentiment than politics. That said, there could be a boost for consumers if sterling continues to strengthen and inflation is lower than expected. 

Some members of the MPC said in March that they needed very little upside news to consider voting for a hike. Could a strong government – and potential resulting uptick in activity - be that upside news? The question is complicated: on the one hand, stronger growth could make the case for rate normalisation. Yet on the other, stronger sterling would reduce the forecast inflation overshoot. For us, the question continues to rest on wage growth – and we still see little sign of a pick-up here. We expect rates to remain on hold this year and next.”