Do UK Elections Impact Investment Returns?

The announcement of a general election in the UK next month has raised questions about what the future holds. Questions like “Will economic growth change?” “Will tax rates change?” “How will my investments be impacted?” and “Will UK equities underperform?” are common. Let’s explore how UK elections have historically influenced the equity market and what this means for your portfolio.

Impact of General Elections on the UK Equity Market

There is a perception that different political parties might influence the equity markets differently. However, examining the UK equity market since Tony Blair’s election in 1997 provides a broader perspective.

UK Stock Market Performance Over Time

Historical data indicates that UK equity returns have generally been positive, regardless of the party in power. For instance, during Blair’s first term starting in 1997, the tech bubble contributed to high market returns, while his second term saw lower returns. Similarly, David Cameron’s tenure beginning in 2010 witnessed strong equity returns due to the recovery from the global financial crisis, despite the Brexit vote during his leadership.

The May and Johnson Years

From 2017 to 2019, the UK equity market experienced lower returns under Theresa May and early Boris Johnson. However, from 2019 to 2024, under Johnson, Truss, and Sunak, the market saw better performance, even amidst the Covid-19 pandemic. This period highlights that significant events, like Brexit and the pandemic, did not dramatically impact market performance. Instead, the prevailing low-interest-rate environment played a key role – a factor largely outside the control of national government.

Economic Cycles Matter More

Our analysis suggests that governments have limited influence on the economy, even during major events such as the Iraq war, the global financial crisis, Brexit, and the Covid-19 pandemic. The stage of the economic cycle plays a more crucial role. During a late economic cycle, where performance is strong, future growth might slow or turn negative. Conversely, emerging from a deep recession usually leads to better subsequent growth. This would suggest that, using the past as a guide, we could reasonably expect good growth from current levels.

At Chesterton House Financial Planning, our investment advice is based on prevailing conditions and takes a long-term view of the future. We’ve discovered over many years of experience that making short-term bets based on events doesn’t work. Instead, we focus on creating a diversified, ‘all-weather’ mix of investments designed to deliver results over time through a variety of circumstances. It’s an approach that has worked well for our clients for many years.

We hope this perspective provides reassurance that the election's outcome is unlikely to drastically alter your investments. Our approach remains focused on long-term fundamentals rather than short-term political changes, ensuring your financial goals stay on track.