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Christmas election: Conservative majority
Published on 13 December 2019, this podcast explores the results of the UK General Election and what this could mean for markets and investments. Our panel discusses what we should expect from the seismic shift in power as the Conservatives emerge with a large parliamentary majority, with Toby Cross (Head of Client Investment Solutions), Will Hobbs (Chief Investment Officer), and Sophie Traherne (Senior UK Political Analyst).
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Chief Investment Officer
Will joined Barclays in 2005 and now leads the team focused on the core aspects of the investment offering. With nearly 20 years’ experience in the financial sector, Will frequently contributes to Bloomberg, CNBC and more.
Follow Will on LinkedIn.
Head of Client Investment Solutions
Toby joined Barclays in 2010 and leads the delivery of Barclays’ investment expertise to our clients and customers.
Follow Toby on LinkedIn.
Senior UK Political Analyst
Sophie joined Barclays in November 2018 after two years as a Government Special Adviser. She has spent her career working in politics, most recently working for the Secretary of State for Wales as his Special Adviser, working on policy, communications, legislation and political engagement.
Follow Sophie on LinkedIn.
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Welcome to Word on the Street, a weekly podcast from Barclays UK where our experts help ordinary investors make sense of the latest news and events impacting the world's financial markets.
This week we discuss the results of the UK election, with Toby Cross, Head of Client Investment Solutions, Sophie Traherne, Senior UK Political Analyst, and Will Hobbs, Chief Investment Officer
Toby Cross: Well, good morning, and I hope that the irony of a Brexit vote on Halloween and a general election outcome on Friday the thirteenth hasn’t been lost on anyone. It may well have been a nightmare on Downing Street for Labour and the Liberal Democrats but is a Conservative majority a good omen for the British economy? Certainly should be enough to carry us through the final stages of Brexit. Joining me to peer through the fog of political rhetoric our government relations expert Sophie Traherne and Chief Investment Officer William Hobbs. Now, whilst the idea of a conservative majority may be alien to some, to others it's the shining beacon that they need to prevent us falling into the abyss. And before I choke on any more horror film references, Sophie let's start with you: in all seriousness…
Will Hobbs: It kind of works, kind of works: “Nightmare on Downing Street” for the Liberal Democrats, it sort of works…
TC: If you can tell me how many film references there were in that intro by the end of this podcast, I’ll buy you a packet of Chewits. In all seriousness Sophie, the moves that we had last night, they do mark a very significant change, a seismic change no less, in the UK political landscape, doesn't it? What does the new landscape look like?
Sophie Traherne: Yeah absolutely, so as you'll be well aware the Conservative Party secured a significant majority. At the time of recording I believe there's one seat left to declare in Cornwall…
TC: Is this because they have to fly the ballot box by helicopter from the Isles of Scilly?
ST: There’s been some high winds apparently delaying the seat being declared but currently the Conservatives are on 364 seats which is a majority of 76 and as you will have no doubt read, this is the biggest majority at Westminster since Margaret Thatcher's 1987 election victory, and the key question in this context, to go back to your question, it was always going to be to what extent could the Conservatives make inroads into the so-called red wall of Labour seats across the Midlands, the North and Wales, and the Conservatives were pretty successful: they took seats like Bolsover, Bassettlaw, Wrexham, Blythe Valley Sedgefield, Don Valley all these are Labour heartland seats and Labour are facing their worst defeat since 1934 and Jeremy Corbyn has already confirmed this morning that he'll not fight another general election as Labour leader. Also lots of disappointment for the Liberal Democrats they failed to make any inroads, and the party's leader Jo Swinson was defeated in her Scottish constituency losing to the SNP and in terms of Scotland if there is a note of concern for Boris Johnson is the numbers for the Conservative Party in Scotland where the SNP made significant gains and very much claiming that the result is a mandate for a second referendum on Scottish independence, so this could be potentially quite difficult for the government and there's also Northern Ireland to consider, where nationalist parties have made narrow gains at the expense of the unionist party, so I think we can expect the future of the Union to be a key challenge for this government.
TC: So Sophie one of the things that struck me was the size of the majority - what impact is that likely to have for the Prime Minister?
ST: Yeah it's a really important question: does the size the majority change things in terms of the Prime Minister's approach to Brexit and indeed domestic policy? On Brexit, the Prime Minister now has a decisive mandate for his Brexit deal as well as the future relationship negotiations. He's definitely got more room to manoeuvre and is no longer necessarily beholden to the Brexiteers in his party, the ERG, you know this bit of speculation this morning about whether this gives Boris Johnson enough room to potentially even pivot to a slightly softer Brexit and on the domestic agenda, you know the one nation conservatism promised by the Prime Minister during the campaign will need to be delivered in order to keep those Northern, Midland, Welsh seats blue at the next election so they will definitely need to demonstrate their pan-UK commitment.
TC: I find it fascinating to see that map of Labour heartland just go blue - it's an awfully long time, as you say, since you've seen districts that would have traditionally been solid Labour heartland… we've got a very new-looking sort of Tory voter base now, don't we? Now, Sophie what do the next hundred days look like for the Prime Minister, what's his timetable from here on out?
ST: Well first things first, formation of the new government, potentially a small-ish reshuffle replacing cabinet ministers who are no longer there, potentially a bigger reshuffle in the new year and even a potential shake-up of Whitehall. Parliament's due to return on the 17th of December and this will involve a couple of days of swearing-in of all the new and returning MPs and then we've got the Queen's Speech, the State Opening of Parliament expected on the 19th of December: this is the formal beginning of each new session of Parliament and it's really the Prime Minister's opportunity to set out his legislative agenda building on the programme that he put forward in October, if you remember he announced 26 bills at the end of October just before MPs voted to back the early general election, so we can expect some domestic priorities to be central to that Queen's Speech, there will likely be bills on immigration, trade, fisheries, agriculture, and financial services and also the week before Christmas we're likely to see the introduction of the Brexit deal, the withdrawal agreement bill or the ‘WAB’ possibly on Friday the 20th and the Prime Minister might try and have a vote on second reading before Christmas to get the principle of the bill passed but it's not yet clear when the house will rise for the Christmas recess, and looking ahead just to the first part of the new year, January will of course be focused on getting the WAB through Parliament and the UK leaving on 31st of January 2020 and finally another big moment is to have a budget which is looking like it's going to be the final two weeks of February, so that's another key moment in the new year.
TC: And with the WAB you were referring to, of course the ‘withdrawal agreement bill’. Now Will as I was sort of tucking into my toast last night because that's all I could find for my dinner I had my iPad in one hand with the live election feed coming through, Hugh Edwards and Andrew Neil, in the one hand and the Bloomberg FX rates in the other hand… fascinating to see the way cable, particularly the strengthening of sterling last night - do you have anything to say about that?
WH: Well first of all isn't it nice to have Sophie back to cover more authoritatively the political, rather than having me fumbling around in the political dark, so thank you Sophie you made everything much better there but yes sterling did…
TC: I'm not letting you get away with it, I find it amazing that somebody can talk about politics without making a pointless reference to the 18th century!
WH: …anyway yes sterling did rise, immediately after the exit poll what you found was that sterling rallied quite sharply so about two percent relative to the dollar, so cable rallied about two percent.
TC: Now give us a sense of what you would expect normal currency movements to be like, because 2 percent doesn't sound like -
WH: Yeah it's big for a currency move, it's a big move I guess.
TC: Does it signal anything?
WH: Well I know this is the problem and always after these kind of moves there's the kind of you know the tea leaf session where everyone looks in and sort of says well what does this mean and what was actually happening and in the end you know you go back to the sort of age-old response which was that there were more buyers than sellers. Now, some people are wondering with regards to UK assets in general particularly those that kind of cling to the UK's economic outlook, which are relatively rare in the global asset universe, now those assets have definitely been sort of suffering from some kind of Brexit related discount so if you assume that all assets related to the UK economy have had a kind of black mark against them from a global investor base. Now yesterday or last night's results likely removes a bit of that black mark and so to that extent some uncertainty has been removed and so that's the theory behind what happened with sterling but over the last couple of months you've seen a very strong move in sterling and that's really based on the idea that actually over that last few months you've seen the chances of an exit without a deal reduce significantly they're not gone all together I think, Sophie will tell us that, that but they have reduced .
TC: For years now, it’s literally years, we've been talking about money in the sidelines waiting to be deployed, are we going to see cash start to move from corporate balance sheets now or do we still need to wait for the Brexit deal to be resolved. Is this general election and the Prime Minister's majority going to be sufficient?
WH: Well I mean there is still, and I'm tiptoeing into Sophie's area and she can correct me and finish off whatever I'm saying, but with regards to you know we have still got like a very complicated part still to come with regards to the trade deal, that is still an unknown you know there are still some that're saying that you could easily still crash out without a trade deal so…
TC: So let's get Sophie's view on that: what are the chances of getting a deal done with the EU in a very short timeframe? You mentioned the withdrawal agreement bill in the UK leaving on the 31st of January - how likely is that?
ST: Yeah I mean so after 31st of January we enter the transition period and this is the time where we must agree this trade deal with the EU to avoid as Will says, leaving with no agreement at the end of 2020, that's the deadline December 2020, so that's why you know all the focus of next year will be on this phase 2 of the Brexit negotiations and what that future relationship with the EU will look like, You know, the revised political declaration which Boris negotiated with the EU will surely form a basis for the government's thinking and we know that Boris Johnson has previously talked before about what he calls a super Canada plus agreement but the key point which you were alluding to is timing - as we know, the transition period will end in December as I said and whilst it's technically probably just about possible to do a trade deal in this time it is a fairly tight timescale, I think everyone is agreed on that, there is an opportunity for the Prime Minister to extend the implementation period beyond that December deadline so basically under the terms of with the withdrawal agreement, before July 1st 2020 which is a key date, the UK, with the agreement of the EU, can extend that transition period for a one-time period only up to the end of 2022. So he does have that option although he has previously committed not to extend the transition period. This then brings back the conversation about the size of the Conservative majority - does that change things, does it give him a bit more flexibility in terms of that deadline? You know from the EU side we’ve very much seen the EU council president say today he's already commented that the EU is ready for the next steps on Brexit and you know we can expect those talks to begin very soon, but I think there's still a question mark about that deadline
TC: Now Will, on the US side then, there seems to be some support for a quick trade deal with the UK - is that realistic and if that does come to pass does that mean anything for how the UK and Europe's negotiations might progress?
WH: Well it's an interesting question here because I mean obviously the EU with regards to that trade deal with the UK will not want the UK to make an arrangement with the US that potentially undermined standards, you know, workers’ rights, regulation, that kind of thing, with regards to the EU so it's quite complicated in a sense, and if you look at it right now obviously and Sophie alluded to this, that the UK as it stands, in kind of regulatory posture, is relatively even with the EU. Now, in order to get a deal done with the US, to a certain extent, there will need to be a changing of some of those regulatory standards which in turn would make a trade deal with Europe more difficult to come to, more difficult to arrange, and certainly within that time frame, that very tight time frame, that makes it more complicated. The easier deal to do on the EU front and the way to get within the 2020 deadline, or so the thinking goes, so to do one before the end of 2020 is to really keep things more or less as they are and that would be a hindrance one suspects to a quick deal with the US.
TC: All right then, back to the UK, Sophie, it was obviously a tough night for Labour last night. In his address early this morning Jeremy Corbyn said he won't be fighting another election - is it likely that we're going to have another Labour leadership contest any time soon?
ST: Yeah it's an interesting question and one that, I mean might be a bit moot when this goes out, because I believe that Jeremy Corbyn is due to make a statement today at some point but again that's not confirmed. You'll have seen in their victory speeches for those Labour MPs, front benchers who did retain their seats, they were almost sort of stump speeches ready for the upcoming Labour leadership, so you've had sort of the likes of Emily Thornberry, Keir Starmer. There were also Labour MPs who lost their seats who were seen as potential successors to Jeremy Corbyn, for example Laura Pidcock up north in Durham, so it will be quite interesting to see, yes like you said how quickly this leadership contests happens. Jeremy Corbyn's talked about a period of reflection - we don't know how long that period of reflection will be, so that question might be answered by the time this goes out but I think that the leadership race is well underway already.
TC: Well in which case the next obvious question is: do you think there's going to be a material change of tack? Because obviously the Corbyn approach hasn't been very successful, would you say that we might see a move from Labour back towards the centre again more like the New Labour of Tony Blair, or do you think that the Corbyn positioning might hold?
ST: Yeah again a really good question and quite difficult one to answer so soon after the polls have closed and the results come in. You would expect the answer to be ‘yes’ because a big part of this election has seen Labour losing their heartland seats, so why did they lose their seats? Yes, you know, people will analyse it to death and it will probably be to do a lot with Brexit but also how Labour ran their campaign, the view of Jeremy Corbyn as a leader, we know that the polls show that he was quite an unpopular leader, so I think you know, lots in the Labour party are calling for a bit of a realignment of Labour party positioning but whether that actually happens in practice is obviously yet to be seen.
TC: All right so I will accept that that was a pretty mean question, perhaps an easier one for you: what about Scotland? It was obviously an impressive night…
WH: Is that an easier question?
TC: …it was obviously an impressive night for the SNP - the thing that vexes me slightly is obviously England is now pro Brexit, Scotland is strongly ‘remain’, the SNP have strengthened their position - what does that tussle mean for us?
ST: Yes they did have a really good night the SNP, came up a little bit short on the exit poll but still made some really significant gains and Nicola Sturgeon was all over the airwaves last night and into the early mornings obviously claiming that this is a very clear mandate for a second independence referendum and you know, in answer to your first question this is going to be a bit of a headache for the incoming government. Boris Johnson, when he first became Prime Minister actually took the title of Minister for the Union, so it shows how seriously he's taking the Union and that you know he wants to maintain the union of four nations but I think there'll be a real question mark over how long they can hold off in terms of the sort of wave of nationalism in Scotland.
TC: Now Will, you spoken about this before: what can we say about the economic case for Scottish independence?
WH: Not too much, to be honest, I mean what we can say I guess is after the experience we've had with the UK's decision to exit the EU, what we can say is that the uncertainty created by the necessary negotiations and the sort of you know the divorce and the future trading arrangements - that does hinder or deter investment and so you do find that there's some kind of drag or headwind to growth as a result of that and if you look at kind of you know the actual economics I guess a lot depends on where you draw the line in things like the North Sea, where you draw the line in the UK's debt, all those kind of things will have a significant bearing on whether, you know, who wins, who loses, and what the kind of divide is. So it's quite hard to speculate from this side but what we can say is that the uncertainty is likely a hindrance in the short term.
TC: OK, any final words from you two?
WH: I've got a final word actually, and I think it's… sorry, just jumping in there, but I think one of the interesting things, you know we've been pointing out for some time that that in terms of global investors or investors who have a global playing field to run around in, the UK economy tends not to be a very important player, and those sort of assets that closely hug the UK economy's outlook - they're relatively rare, you know sterling, or bits of sterling, bits of gilts, you know bits of stocks, that kind of thing. But the interesting point was yesterday the big news, and really that overwhelmed in market terms, you know what happened here in the excitement overnight – the phase one trade deal from President Trump in the US and what you found is that you have seen a sharp rally in global stocks and a sharp sell-off in global bonds which happily we’re positioned for in our tactical portfolios but that is really as a result of some of those risks with regards to the trade war sort of receding a little bit, some of those recession risks are increasingly being priced out and that's really the most important thing for investors to get a hold of, I mean the UK election is obviously very important to us that live here, but for our global investors remember that there's bigger things at work, and probably the US economy is still the thing to keep an eye on.
TC: That's super helpful and as you say Will, the purpose of this podcast is to help investors look through that the press to see what's important as far as the portfolios are concerned. Sophie any final words?
ST: I guess just to say you know as we look into 2020 it will certainly continue to have a great deal of Brexit focus, this is not obviously over and the UK will leave at the end of January and the trade negotiations get underway, but it will also be really interesting to see how the domestic agenda develops. I thought it was quite telling that the Prime Minister said in his victory speech that you know he said what we need to do, is we need to demonstrate to the people who voted Conservatives, perhaps for the first time in their lives, perhaps for the first time in generations, that we take them seriously, so lots to look out for in 2020, I don't think it's going to be boring.
TC: Well it's the season for giving and I thought I would give you both a gift in the form of some Christmas statistics! Consulting and accounting giants PwC forecast that average Christmas spending will be around £408 per person this year which is fractionally down on the £421 average from 2018. Interestingly the Centre for Retail Research identified that in 2018 around 31% of all Christmas retail shopping was done online, so significant growth in online shopping. Now whilst there's admirable concern about reducing the impact from single-use plastic you may be amazed to learn, I certainly was, that an estimated 750 million brussels sprouts are sold in the UK at Christmas, of which 50% are estimated to be uneaten based on 2018 estimates from the ONS
WH: Have you seen my brussels sprouts jumper?
TC: I have, it's phenomenal, it's a great sadness that this is an audio podcast but Hobbs is wearing a Christmas jumper with brussels sprouts on it that have LEDs in that light up…
WH: Yes it looks like the Brussels sprouts have been sick as well but I don't think they are.
TC: Now finally, whilst the Boeing 737 Max fleet may have been grounded around the world this hasn't hampered the aviation ambitions of youngsters: this year's top toys include the Barbie dream plane playset, the Owleez flying baby owl and the Paw Patrol mighty jet command centre - that's according to data from Amazon and the Toy Retailers Association. All that remains…
WH: I have to say that my youngest was asking for the Paw Patrol command centre and I've just said no, basically Christmas is cancelled from that perspective but anyway...
TC: Well if you have any thoughts on that, dear listeners, please use LinkedIn to lobby and rally around poor Hobbs's kids. All that remains is for me to thank our bleary-eyed guests this morning for staying up all night to give us some meaningful insights and also to thank you for listening. We look forward to catching up with you as ever next week for another Word on the Street
All investments can fall as well as rise in value and their past performance is not a reliable indicator of a future performance. This podcast is not a personal investment recommendation.