What to expect from the Conservative Party leadership contest

13 June 2019

3 minute read

By the end of July, it is expected that the Conservative Party and the country will have a new leader. Here, we explore what that might mean for investors.

Who's it for? Confident investors

What you’ll learn:

  • Does the Conservative Party leadership contest really matter?
  • Who is going to win?
  • What a new Conservative Party leader may mean for investors

The field of contestants for the leadership of the Conservative Party (and the UK) continue to jostle on the national stage. Various segments of the electorate, or a miniscule subset of it, are being targeted with promises of tax cuts, restored national pride or admissions of misspent youth. The parliamentary Conservative Party is currently having first dibs at whittling the list of contenders down to something more manageable, so that the Conservative Party membership can have their final say. By the end of July, it is expected that the Conservative Party and the country will have a new leader. We explore what that might mean for investors below.

Does it matter?

Translating campaign trail talk into policy and further into investment action is a perilous game at the best of times. Plans and proposals have to run the gauntlet of parliamentary consensus, civil service implementation and even investor opinion. The latter can be extremely important with regards to major changes of direction, particularly those requiring funding. As we tend to find at the personal level, those lending us money to fuel lavish spending plans without much hoped-for return often ask for a higher interest rate to compensate them for the risks of lending to us.

Those candidates promising a ‘clean break’ or ‘hard Brexit’, depending on which way you voted in 2016, may struggle to deliver on their promise. Achieving an exit without a deal is certainly not impossible, but likely trickier than advertised. Admittedly, parliamentary procedure currently offers no legally binding route to block an exit without a deal in the absence of a vote of no confidence in the government.

However, the Speaker of the House is the high authority in the House of Commons and could, in theory, be more flexible in his interpretation of parliamentary convention. Some are speculating that this flexibility could pave the way for MPs to stage a vote – perhaps on an emergency debate, as the current Speaker has hinted in the past – allowing a fresh law to be passed to block a no deal.

Who is going to win?

Here, as with all forecasts (especially those political in nature), a hefty dollop of humility is appropriate. Leafing through past Conservative leadership contests, the one clear trend that emerges from Harold Macmillan in 1956 through to David Cameron in 2005 is that the favourite very rarely seems to win. Whether that should bias our thoughts here, is open to debate of course. The current thinking is that if Boris Johnson makes it through the parliamentary test, then he is a clear favourite amongst the party faithful. However, much can happen between now and the end of July, when a new leader is scheduled to be installed in No 10.

Investment conclusion

We’ve long talked about the UK economy’s small role in the globally diversified funds we run for clients. This Conservative leadership contest is perhaps the most important and the most consequential that many of us will have seen. Who eventually wins will have an important bearing on the manner of the UK’s exit from the EU, which itself will dictate the economic future of the UK.

However, for investors, the focus should remain on the world economy. The risks of an imminent recession are rising as the front line in the US’s trade scrap with China continues to broaden. For us, these risks are still being exaggerated a little.

For medium-term investors, the next recession is an irrelevance.  A belief in the continuation of the Fourth Industrial Revolution, from AI to robotics, is all that is required.

Where to invest

Smart Investor offers a wide range of funds, and our Barclays Funds List may help you to narrow down the wide range available to invest in. These funds are selected by Barclays investment specialists and, based on our research, they’re the funds that we believe have the potential to generate consistent returns over the medium to long term.

You should only be thinking about holding these investments for at least five years as they’re designed for the long term.

All of these investments can fall in value as well rise; you may get back less than you invest.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances. Smart Investor doesn’t offer personal financial advice. If you’re not sure about investing, seek independent advice.

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