Whatever else Boris Johnson has planned, one thing is clear – after years in the cold, it’s time to buy Britain, says John Stepek.
This time last year, Britain looked virtually ungovernable. Theresa May had just survived a “no confidence” vote in the House of Commons, but her days as prime minister were numbered. With open rebellion in her own party and no way to pass her Brexit deal without getting entangled in one party or another’s thicket of “red lines”, the UK was gridlocked.
Fast forward to today. With the Conservatives, under Prime Minister Boris Johnson, securing a majority of 80 seats – far more than expected – Britain now has its first “solid majority government” in 14 years, as Helen Thomas of BlondeMoney puts it. Not only that, it’s the first such Conservative government in 32 years. It is no exaggeration to say that “this will completely change the outlook for the country”. What happens now? And what does it mean for investors?
The new politics
The most obvious change is on Brexit. Johnson’s withdrawal agreement is set to go back in front of parliament on Friday 20 December, where it should now pass easily. So Britain will leave the European Union (EU) on 31 January. A “transition period” during which to negotiate a new deal with the EU then follows. The aim is to have this wrapped up by the end of next year – if not, the relationship will be governed by World Trade Organisation (WTO) rules. The government has formally ruled out any extension to the deadline, with the goal of focusing minds on getting a deal done quickly and also on showing to sceptical “leave” voters that Johnson is serious. That means markets still have the spectre of a “hard Brexit” to fret about – but at least they know that the process has a genuine end point to prepare for now.
Another big shift is that the government will be spending a lot more. One focus will be the north and the Midlands, where lifelong Labour voters turned Conservative rather than vote for Jeremy Corbyn. The new government will want to make sure that those voters don’t suffer buyers’ remorse, which for now looks to mean billions in extra spending on improving the rail network in particular. The other beneficiary is set to be the NHS, with the government committing to spending an extra £34bn on the health service by the 2023/2024 tax year. The Office for Budget Responsibility – the UK’s public spending watchdog – is unlikely to welcome it, but Chancellor Sajid Javid (like every single one of his predecessors) will no doubt find a way to finesse the situation so that it looks as though the government is sticking to one made-up fiscal rule or another, when he finally gets to deliver his first budget in February or early March.
Finally, there’s the shake-up of the civil service, under Dominic Cummings, the strategist behind both the Conservative victory and the “leave” vote in 2016. Cummings has often criticised the civil service in lengthy blogs on the topic – now he has the chance to put his ideas on improving things into practice. Overall, reports the Financial Times, the idea is “to help develop a post-Brexit economy – focusing on boosting northern England – and to update UK foreign policy based on the concept of ‘global Britain’”. So far that includes, among other things, a new energy and climate change department.
What does it all mean for investors?
From an investment point of view, the election has already achieved two main things. Firstly, it has removed the need to apply a “Corbyn discount”. The share prices of companies in the sectors most at risk of nationalisation under a Labour government have been the ones to recover most resoundingly following the vote. And more broadly there is general relief that the UK has reaffirmed its commitment to free-market capitalism, rather than a return to widespread state ownership and punitive taxation. So from that point of view, the UK is no longer “uninvestable”, as some particularly excitable analysts have suggested at various points over the last few years.
Subscribers can read it in the digital edition or app