Surprising the country and the markets, Theresa May has done what she expressly said she would not do, and led the country to a General Election, scheduled for 8th June. Brexit will, of course, be on the agenda, but there are now numerous divisions between the two main parties across all areas of economic policy. As the campaign starts, we ask: what will the election mean for investors and developers?
The polls indicate that the most likely result is a Conservative victory. In this case, we can expect government policy to carry on much as before. However – and despite Theresa May’s slogan “strong and stable” – in the wake of Brexit, government policy carrying on much as before does not give us very much certainty as to what will happen. Major state investment projects are under review. A large EU ‘divorce bill’ would give the Chancellor less room for manoeuvre in public spending, perhaps meaning more austerity at a time when consumer and investor confidence is waning. The independent Bank of England has a key choice to make on interest rates, as we reported a month ago. Ministers refuse to give an idea of what immigration – a key to the British economy – will look like after Britain leaves the EU, with prominent Brexiteers such as Boris Johnson and David Davis hinting that high levels of immigration may continue, despite the rhetoric of the referendum campaign. The Housing White Paper, which we looked at on this site when it was published, still needs to be implemented. A re-elected Conservative government will face an uncertain environment, and still has a lot of choices to make.
With regards to Brexit, a Conservative majority government very likely means a complete exit from the single market and European customs union. The subsequent terms of trade between Britain and Europe are the great unknown for the UK economy. The Conservatives have said very little about these terms – only that they will be “the best possible” – and the EU has said that they can only be discussed after the divorce bill is agreed.
The Labour Party has set out a similarly vague, but probably softer, approach to Brexit. With less eagerness to cut immigration or remove Britain from the purview of European courts, a Labour government could retain at least some aspects of the single market and customs union. This is likely to be good for both exporters and importers in Britain, but once again, the devil will be in the detail and the detail will probably wait for two years until the divorce agreement is settled.
At home, a Labour government under Jeremy Corbyn would probably be a major economic departure from the past thirty years. We can expect more state involvement in the economy (including a national investment bank), higher wealth taxes, and perhaps a policy of credit creation – what Corbyn’s team in 2015 referred to as “people’s QE”. Such left-wing ideas might spook some investors and developers, and higher taxes would certainly be a worry, but this economic programme would also provide opportunities to make money. State investment in infrastructure will push up demand and the long-term value of assets, and will likely require private sector participation, so savvy businesses could find themselves benefitting. An ambitious housebuilding programme might stop the housing market overheating and offer developers incentives to build: we are also likely to see planning regulations relaxed if Labour is serious about meeting housebuilding targets. People’s QE would put downward pressure on the pound, but so would a hard Brexit, and exporters benefit from this in any case.
There will be risks and opportunities for investors and developers whoever comes out on top in this election. What to watch out for now is the publication of manifestoes, in which policies will be laid out in more detail, offering us a little more insight into what we can expect from the parties.
This article was written by Matthew Dailly, Managing Director of specialist bridging loan and development finance company Tiger Financial.
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