On 4th July the UK will elect a new government. With inflation having slowed meaningfully and the economy staging a recent bounce, the Prime Minister has seized the opportunity to announce a General Election somewhat earlier than had previously been thought.

If a Labour Party majority does come to fruition – based upon Labour’s current policy positioning we could see:

• Some tax increases / some reversal of tax cuts announced in the Spring budget
• The use of increased revenue from higher taxes to finance higher spending
• A re-assessment of the UK/EU trade framework

But in any event, the extent to which any party could propose expansionary policy is limited by the UK’s net debt rule.

So whilst party manifestos are yet to be seen, meaningful surprises on fiscal policy are unlikely. The immediate future promises only a shallow recovery from the recent technical recession.

The Bank of England will continue to conduct monetary policy independently. The election will have no direct influence upon their decision making. Recent news on inflation and growth has pushed back expectations of policy rate cuts. Market expectations are now close to our long-held view that a gradual start to the easing cycle cannot start until August.

We don’t see an immediate impact upon the gilt market as a result of the election. Sterling may see a post-election relief rally and, closer trading ties with the EU will be positive but this might not be seen until into next year. Besides, markets would then be focused on US election results. In the medium-term, we see more downside risks for sterling than upside.

From a UK pensions policy perspective, we are expecting a number of consultations and responses to recent consultations, e.g. Options for DB Schemes, to be delayed. However, we do expect to see the productive finance agenda and the matters in the financing growth report, including a pensions review, to feature in Labour’s policy positioning.