UK election result: what the Conservative majority means for markets and investments

Sterling has risen sharply as Boris Johnson's unexpectedly wide majority gives shorter-term clarity: Brexit is now likely within weeks

13 Dec 2019

Investment Team

The Conservative majority means that the withdrawal agreement is likely to be approved rapidly: Boris Johnson's campaign call of “Getting Brexit done” is set to become reality by the 31 January 2020 deadline, with legislation likely to be pushed through during the Christmas period.

Markets' response was swift and positive: the pound jumped on Thursday night as exit polls first indicated the likely scale of the Conservative win. By early Friday sterling was 2.7% higher against the dollar, trading at above $1.34 at 6am.

This puts sterling 6% higher against the dollar than a year ago – but still squarely within its post-referendum range.

UK equities

UK shares rose sharply in early trading. Sue Noffke, Head of UK Equities at Schroders, said: “This election outcome in many ways makes the UK stock market investable again for those who had shied away due to the previously high level of political uncertainty.

“Sectors that had been mostly heavily impacted by that uncertainty – such as domestically-focused stocks, mid-sized firms, banks, housebuilders, utilities and retailers – are among those experiencing the strongest gains today."

She points out that the UK has lagged other markets for the last three and a half years. "There could potentially be scope for this discount to close, given the greater clarity on policy provided by the election result."

Economy and businesses

In the near term, greater clarity around Brexit should benefit the UK economy, providing some support to both sterling and UK companies with domestic exposure.

We expect the FTSE 250, smaller companies and the big domestic banks and utilities to benefit more markedly than the international earners within the FTSE 100.

Our economics team expects modest UK economic growth of 1% in 2020. Stronger sterling should keep headline inflation below the Bank of England's 2% target.

We think the Bank will keep interest rates on hold until there is more clarity on the UK’s economic growth trajectory and on Brexit.

Janet Mui, Cazenove Capital's Global Economist, says: "Although the Bank is keen to normalise policy, there is a lack of urgency to increase interest rates if inflation is expected to remain benign."

"If global as well as domestic growth recovers, we think the Bank may raise rates once in 2020."

She anticipates an uptick in business confidence following the election result. "Some pent-up demand which was halted by the election may now come back, but we do not expect companies to significantly increase their capital spending."

She points out that households may also feel more confident in their financial situation, which should support continued growth in consumer spending.

The election result will have longer-term political implications which are not yet clear.

“Prime Minister Boris Johnson has seized a huge majority, delivering the best election result for the party since 1987 and, in turn, the worst for Labour for more than 70 years," said Schroders' Senior European Economist and Strategist Azad Zangana.

"This comprehensive result has sent the pound soaring, suggesting Labour Leader Jeremy Corbyn’s far left-wing agenda has run its course."

“The UK will now be focused on delivering the UK’s Brexit withdrawal agreement by 31 January. Following that, it will then move on to trade negotiations with the European Union, as well as its own domestic agenda in the UK.” 

Brexit and future trade

In the medium term, there is still significant uncertainty about what the UK’s actual trade relationships with the EU and the rest of the world will look like after 2020. The risk of a “no trade deal” Brexit could persist through next year, but given the size of his parliamentary majority Boris Johnson could have more room to give concessions in return for a better trade deal.

We think this uncertainty around future trade relations could limit the extent of gains in sterling and UK domestic stocks over the course of the year.

Personal taxation

A further outcome of Conservative Government is greater certainty over personal taxation: based on the details within the Conservative manifesto we expect little substantial changes to the tax regime in the near to medium-term.

Chart sources: Refinitiv


Investment Team


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