UK elections, like UK budgets, tend to be a non-event as far as the UK stock market goes. That’s a consequence of all political news being pre-spun into share prices and/or the fact that London stocks have a distinctly international air.
But there’s one exception: 1974.
Labour formed a minority government in February that year, whereupon the market fell over 10 per cent in the space of a week and 20 per cent in the space of a month.
But as Sharon Bell, one of Peter Oppenheimer’s team members at Goldman Sachs, points out, the British economy was actually in a real mess back then – GDP fell 1.3 per cent in 1974 at a time when inflation was running at 13 per cent.
Bell adds, in a note to Goldman clients on Tuesday:
The election result came in the middle of a long bear market in UK equities…From mid 1973 to the end of 1974 the market fell almost 70% as a result of the oil crisis and recession. The election may have been an exacerbating factor but was not the route cause.
Today markets have been strong, inflation is not a major threat and the world economy, on our economists’ estimates, is likely to grow by 4.6% this year and the UK by 1.7%. In addition, when a new government is elected, any moves to cut the deficit would most likely be received positively…
We will see about that in due course. In the meantime, here’s a little chart showing the performance of UK stocks pre and post the past 10 elections. (Click to enlarge.)
Related links:
Brown calls general election for May 6 – FT
The Great British Peso – FT Alphaville
‘If you really want a fiscal problem, look at the UK’ – FT Alphaville