The election - a political event not an economic event


At James Sharp we could discuss endlessly the outcome of the election, but that is for others to do. As an independent stockbroking firm we want to put the outcome into context for the investor. Primarily it should be considered a political event, not an economic one.

Currency

The main economic impact has been a weaker British Pound against its peers. As we saw with Brexit the weak pound has had a positive impact on the FTSE100 due to the level of overseas earnings. Conversely, it has had a moderately negative impact on the FTSE250 due to the lack of overseas earnings in that index.

Interest Rates

The likelihood of any interest rate rises has been pushed further out into the future. Weaker confidence will likely feed through to economic data. The monetary policy committee will take a cautionary approach to any interest rate rises. Income producing assets will remain supported if the low-interest rate environment prevails.

Sectors

Poor consumer confidence will impact on domestic companies most such as general retailers, car sales, restaurant chains and housebuilders (though low-interest rates and government policies should remain supportive).
Perhaps one area of special mention would be the utilities sector. Jeremy Corbyn's policy to renationalise these industries seems to have been a popular one. If it is politically expedient to impose heavier regulation then this could be a concern.

Brexit

The Brexit negotiations are likely to take a softer approach to account for the broader political influence. A more collegiate approach to the negotiations must be pursued to have any chance of being credible. Single market access can no longer be ruled out. This may not be so bad in the long run for the UK economy.

Conclusion

Stuart Forshaw, Investment Analyst at James Sharp & Co, predicts there will be more political upheaval to follow: "Another EU referendum is unlikely. Another general election is clearly quite possible, but not in the short term.

"If the political mess creates sufficient buying opportunities then do so. The broad approach remains to buy quality companies at a fair price and hold them for the longer term."