The starting gun has been fired for a summer UK general election, with a change in government predicted. What might that mean for investors and global families?
On May 22, British prime minister Rishi Sunak announced a UK general election, set to take place six weeks from now, on July 4. But what will this mean for the UK as a destination for global investors?
Interestingly, on the same day as the election announcement, the latest figures revealed a decline in inflation. The Consumer Prices Index (CPI) recorded a 2.3 per cent inflation rate in the UK for the year up to April 2024. This figure is lower than the inflation rates in the eurozone (2.4 per cent) and the US (3.4 per cent), indicating a potentially favourable economic climate.
The election is taking place at a critical juncture for the country. “The Labour government in waiting is unlikely to be able to make major changes that sharply improve the UK’s productivity or overall GDP growth,” says Arnab Das, global market strategist for the Emea region at Invesco, which has $1.4tn in assets under management. Mr Das counts on Labour to continue to “foster the stability” and “predictability” of Mr Sunak’s government.
“The much-unloved UK stockmarket has already started coming back into investor focus due to cheap valuations, high dividend income, and the prospects of cyclical improvement in the UK (and Europe more broadly) at the same time as a potential cyclical denouement in US exceptionalism,” he added.
Small and mid-caps
Rachel Reeves, the shadow chancellor, has not been business-friendly in her rhetoric according to Iain Tait, partner and head of private investment office at London & Capital, which manages more than $7.7bn in assets.
But Labour’s support of infrastructure, renewables and the IT space will be welcome news to investors. “We do think that an incoming Labour government will be more pro-renewable, and pro-infrastructure,” he says. “And probably a more friendly, doff of the cap towards Europe, and all of that could be friendly and supportive for UK small and mid-caps.”
He expects a good tailwind for these sectors from an inbound Labour government.
Mr Tait says London & Capital is putting its “money where its mouth is” and has started to “invest in the small and mid-cap space in the UK”.
Family offices
This election will also be of concern for the UK as a home for global families. The chancellor Jeremy Hunt recently announced tax changes to those with non-dom status, while Labour has long promised a crackdown on this sector. Will they be looking elsewhere?
“There is likely to be some outflow by non-doms, but this also seems unlikely to become a flood, not unlike the gradual loss of significant assets, intermediation, and people/talent due to Brexit,” says Invesco’s Mr Das. “London remains a globally pre-eminent financial centre, as it has been for centuries, but is losing some of the steam and activity of the last few decades as the EU and eurozone’s main financial centre,” he explains.
But while other hubs in Europe are growing, for example Paris, Frankfurt and Amsterdam, none can match London, according to Mr Das. “London is likely to retain a major, probably still a leading, position, but not as dominant as it has been.”
Yet Mr Tait paints a much starker picture. “A decent percentage of families that have decided that the changes to the non-dom rules, particularly around inheritance tax, is sufficient for them to make a move,” he says.
“So we've gone from talk and rhetoric to actual real family movement,” he added.
Mr Tait believes that this is “likely to continue” if a Labour government takes the keys to 10 Downing Street. Some of these families have preferred Italy as their desired jurisdiction, he explains.
AI
The UK has long been referred to as “Europe’s AI leader”. This is due to a combination of factors, from the proliferation of research hubs scattered across the UK, for example Oxford University, to AI companies setting up shop in the UK. For example, UK AI company Wayve recently announced that it secured $1.05bn in funding investment to develop the next generation of AI-powered self-driving vehicles.
Tim Gordon, co-founder, and partner at Best Practice AI, which assists organisations in using AI to build sustainable competitive advantage, says there will be three likely impacts of the election on AI.
“There will be an AI Act providing regulatory stability for AI players here,” he says. He also believes that there will be “less performative visa activity”, which will provide more stability for international talent. In addition, the “UK will move closer to the EU, reinforcing London’s opportunity to be the European base to grow from”.
David Marsh, chairman and co-founder of OMFIF, an independent think tank for central banking, economic policy, and public investment based in London, claims AI will do well in the UK under any government.
“Rishi Sunak will soon be snapped up by one of these global technology leaders,” he says. “He will be a very active and engaged former UK prime minister, going back to his original sphere of finance and technology.”
