With pivotal elections sweeping across 50 nations and over two billion individuals making their voices heard, the stage is set for geopolitical shifts in 2024. Geopolitical volatility was identified as the biggest risk in the World Economic Forum’s Chief risk Officers Outlook 2023 and at Moneycorp, we understand the profound implications these global events hold for economies and currency markets worldwide.

With this in mind, last month I had the pleasure of hosting a client event with Lord Gavin Barwell, the former Chief of Staff for Theresa May, centred around the election and what we can expect from the UK outlook following 4th July.

I am pleased to share some of our key takeaways from the discussion that shed light on what we could expect from the upcoming UK General Election. While the discussion was focused on businesses, Lord Barwell's insights provide a nuanced understanding of the political landscape and its potential implications for all of us.

I’d like to take a moment to thank Lord Gavin for joining us and I hope you find his insights as valuable as we did.

The election outcome

At this point, the election and its subsequent results are imminent and as it stands the polls have Labour ahead with 40% of the vote, the Conservatives trailing with 20%, and Reform UK in third place with 16%.

If we look back to the last election in 2019 (reported as a landslide victory), the Conservative party won 66 seats to gain the most significant majority since Margaret Thatcher’s 1987 victory. Prior to the election, polls had Conservatives with 43% of the vote and Labour with 33%.

According to the Telegraph's election predictor, which uses the latest polling data to forecast results for each constituency, the Labour Party could walk away with 442 seats, leaving the Conservatives with 89. This is dramatically different from the last ‘landslide’ election when the Tories, under Boris Johnson, won the election with 365 seats. If the outcome comes in as expected, we could be about to witness an unprecedented majority held by Labour and a historic loss for the Conservatives.

Lord Barwell discussed the potential outcomes of the election with us, which now seem likely fall on a spectrum between a Labour super majority to a slim majority. Both these eventualities present unique challenges:

1. Labour super majority: Risks of government arrogance and complacency with insufficient opposition to hold them accountable.
2. Slim majority: This could lead to significant influence from a small faction of Corbynite MPs.

Another consideration highlighted by Lord Barwell is that for the Conservatives, a significant reduction in MPs would limit the talent pool for shadow government positions, which would mean fewer choices for these roles. This could result in inexperienced MPs, those taking on the mantle of MP in a part-time capacity, and those with deviating views from the party's core taking key shadow ministerial roles.

The structure of select committees is also impacted by the spread of voting, mirroring the proportional strength of each party. This underscores the importance of having a balanced and effective opposition.

Change and economic stability

Labour has centred its campaign on the promise of economic stability, a concept that conversely also implies the need for change in this case. They argue that their approach will bring an end to the internal conflicts that have plagued the Conservative Party, providing a steadier hand at the helm.

For businesses, we know stability and predictability are paramount. There's an adage in business that companies prefer a consistently applied bad policy over a good one that requires adjustments along the way. This underpins the value businesses place on knowing what to expect, even if the conditions are not ideal. Labour pledges to offer this much-needed predictability, fostering an environment where businesses can plan for the future with greater confidence.

What can businesses expect from Labour's policies?

We discussed three central policy areas during the session.

• Taxes: Labour has committed to no headline tax increases for businesses. However, this will likely increase the overall tax burden through measures such as freezing tax thresholds. The Institute of Fiscal Studies has accused political parties of colluding to obscure the necessity for future tax increases.
• Industrial strategy: Labour are planning to establish a comprehensive industrial strategy once in government. This would involve creating a council of ministers, trade unions, and businesses to develop and implement this strategy collaboratively.
• Labour market reform: Labour is likely to want to regulate the market to enhance employment rights. Key measures could include clamping down on fire and rehire practices and aligning labour market regulations more closely with European standards. This approach is intended to provide greater security and fairness for workers but could be seen as a negative, particularly for SMEs.

Lord Barwell talked about the importance of clear guidance on how businesses can exert their influence effectively in the coming months. Labour's formalisation of this process is crucial to ensure that businesses have a structured pathway to make their voices heard. Well-organised and fair trade bodies will play a key role in this, ensuring that all sectors are represented.

Moreover, he highlighted that the government needed to recognise that larger businesses don't necessarily represent the interests of the economy's growth engines—SMEs. By acknowledging and addressing small and medium-sized enterprises' unique needs, Labour could create a more balanced and inclusive economic landscape.

Stimulating growth

Addressing the UK’s stagnant economy while not increasing taxes or cutting national spending has been a significant part of Labour’s election campaign. To make this possible, long-term investments like education and large infrastructure projects are less appealing, and Labour will have to focus on generating more immediate results. Lord Barwell outlined three possibilities for stimulating growth in the short term:

• Rejoining the single market: This would likely create a wave of investment.
• Increasing highly skilled immigration: Attracting skilled workers can drive innovation and productivity.
• Facilitating construction: Stimulating growth by making building things like housing, data centres, and offices easier.

Political realities rule out the first two options, so Labour could focus more on the third – making it easier to build things. Restoring the UK's reputation for 'dependable predictability' should bring investment back and provide businesses with the stability and confidence they need to thrive.

International considerations

We also talked at length about the UK election taking place against a backdrop of other international political events.

The US political landscape, in particular, poses significant risks, with a potential return from Trump. Trump’s policies have the potential to disrupt markets, especially with the potential for import tariff implementations and defence spending demands on the US’s NATO allies.

In Europe, the rise of right-wing populism, exemplified by leaders like Marine Le Pen in France and Giorgia Meloni, adds another layer of uncertainty.

Sunday’s first round of voting in France delivered the expected victory for Marine Le Pen’s far-right National Rally party, taking 33.2% of the votes and pushing President Emmanuel Macron’s Ensemble Alliance down into third place also behind the Nouveau Front Populaire party. 

If this trend continues through to the final round of voting on Sunday 7th July, France could find themselves lead by a far-right political party for the first time since World War II which is causing a ripple of concern across the bloc. The situation in France is perhaps exacerbated by the recent successes in Germany of the far-right Alternative for Germany (AfD) party.

As we navigate the uncertainties of the upcoming UK General Election, and other pivotal elections taking place across the world, Moneycorp is here to support our clients with their foreign exchange and payment needs. We are committed to helping you manage through any market volatility, ensuring that you can make informed decisions and continue to thrive in this dynamic economic landscape.

Our team will operate extended hours over the upcoming days to ensure you have coverage when needed. You can find our election opening hours on our LinkedIn page here.

About Lord Gavin Barwell

Gavin Barwell served as Downing Street Chief of Staff to Prime Minister Theresa May from June 2017 to July 2019 during one of the most turbulent periods in British political history. As the Prime Minister’s most senior political adviser, he was intimately involved in the conduct of the Brexit negotiations, as well as the development of key domestic policies like the UK’s commitment to net zero carbon emissions by 2050 and foreign policy.

Prior to his appointment as Chief of Staff, he has held a number of pivotal political positions.

Lord Barwell now runs NorthStar, a business he co-founded which provides advice on UK and geopolitics to corporate clients.

Data sourced from Bloomberg

This commentary does not constitute financial advice and all quoted rates are sourced from Bloomberg.