Will McIntosh-Whyte: What to expect after the general election

As if things weren't chaotic enough, misinformation is rampant ahead of the UK election, writes Will McIntosh-Whyte. With that in mind, he explores what plans the politicians may be hiding and how markets will react to the eventual result …

Two Brexit deadlines have come and gone in 2019. The year also provided three failed Brexit parties - two of them were shindigs organised by my stepfather in his local pub. The other by Nigel Farage - who is also partial to a pint. Maybe they will both be celebrating come 31 January.

So will 2020 make it third time lucky for my stepdad? As we face the Brexit endgame (or at least the end of the beginning), the election circus - full of clowns, contortionists, tightrope walkers and loosely trained animals - has come to town just in time for Christmas. 

Headlines fill the newspapers as parties deliver their manifestos and rivals lambast their plans for being ludicrous, uncosted or downright lies. Boris Johnson has found £6bn from foregoing a tax cut he never made, the Liberal Democrats point to a £50bn ‘remain bonus', and the Conservatives currently have Labour's spending plans costed at over £1 trn. It is ironic how concerned many people are about meddling from ‘foreign powers' when we have plenty of disinformation generated on home soil.

With a December election the phrase, "turkeys don't vote for Christmas" keeps popping up in my mind. Yet I cannot help but think that, if you invite a turkey round for Christmas, they would probably come! 

"There'll be lots of drinking, presents, games, films and eating all day. Any dietary requirements? Oh no worries, there'll be a nut loaf. Great, see you then!" 

Sadly for the turkey it faces an informational disadvantage. By omitting one key fact, I am fairly certain the turkey would be beating a path to your door on Christmas Day. And no I am not saying UK voters are turkeys, but I think they may be at a similar informational disadvantage to our metaphorical fowl. 

With all of the circus clamour ahead of the election it is, of course, difficult to predict a result. The polls point to a Conservative majority, but we have all learnt our lessons there. 

Often it is better to watch the bookies, who have more skin in the game: they too currently indicate the same as the pollsters. And now with Nigel Farage confirming the Brexit Party will not contest Conservative seats, it seems to point to a victory for Boris Johnson. However, a week is a long time in politics, never mind a month. 

We must also be careful of the London bubble - Londoners, City workers and politicians often make the mistake of assuming their views are shared by the rest of the nation (see 2016). Interestingly, this time it feels the City is much warier of the polls, and many commentators are forecasting a hung parliament. This caution has reflected in sterling, which has not materially moved since the election was announced. 

If we do see a Conservative majority, sterling should strengthen further because you should expect an orderly Brexit (i.e. the oven-ready deal) and the threat of a Jeremy Corbyn-led government would be removed. 

Equally, tax cuts, higher public spending and a generally pro-growth agenda would be good for the economy, but may see gilt yields move higher as a result of this fiscal splurge. Under Corbyn, those gilt yields are likely to go even higher and sterling materially lower due to perceived fiscal imprudence and anti-business agenda. 

A hung Parliament, on the other hand, would likely push yields and the pound lower because the it fails to produce the certain way forward that investors (and the public generally) crave. 

Another hung Parliament or Corbyn majority/alliance could see sterling retest the 34-year lows of August. And, of course, Mr Johnson's Brexit deal would only be stage one. Plenty of uncertainty would linger, especially around how any final relationship would look, so we would probably be cutting our US dollar hedges into meaningful sterling strength. 

As for Christmas itself: full disclosure, my family eats curry on Christmas day, so the turkey can along come too. 

Will McIntosh-Whyte is a multi-asset fund manager at Rathbones 

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