UK prime minister Rishi Sunak on Wednesday called a UK general election for July 4 — during the summer holidays of Scotland’s schools.
Scotland’s First Minister and SNP leader John Swinney said the election as an “opportunity to remove the Tory government and to put Scotland first”.
Swinney added: “This is perhaps the latest act of disrespect from a Conservative government to call an election during the Scottish summer school holidays.
“There will be schools in Scotland on holiday by the time polling day comes and that will not have been given a moment’s thought by the Tory election planners.
“It shows the contempt the Tories have for Scotland.”
Sunak’s Conservatives are widely expected to lose the UK election to the opposition Labour Party after 14 years in power.
Sunak stood outside 10 Downing Street in pouring rain to make the announcement.
“Now is the moment for Britain to choose its future,” said Sunak, describing that choice as one between stability with him and the unknown with Labour leader Keir Starmer.
“Over the next few weeks, I will fight for every vote, I will earn your trust and I will prove to you that only a Conservative government led by me will not put our hard earned economic stability at risk.”
Sunak claimed Starmer always took the “easy way out” and had no plan. “As a result, the future can only be uncertain with them,” he said.
Starmer said: “If they get another five years they will feel entitled to carry on exactly as they are. Nothing will change …
“I am well aware of the cynicism people hold towards politicians at the moment, but I came into politics late, having served our country as leader of the Crown Prosecution Service, and I helped the Police Service in Northern Ireland to gain the consent of all communities.”
MARKETS REACTION:
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Although some of the more severe headwinds have eased, the Conservatives will go into this election facing an electorate still struggling with the cost-of-living.
“Inflation has come down towards target, but it has disappointingly missed forecasts, which means prospects for an interest rate cut have been pushed further into the distance. House prices have started creeping up again, amid supply shortages in key parts of the country, which means that getting onto the ladder is still unaffordable for many young people.
“This is while others face the daunting prospect of remortgaging on much higher rates and tenants are watching rents climb at super painful rates. Growth forecasts have been upgraded for the UK this year by the IMF this week, from 0.5 to 0.7%, but it’s hardly shooting the lights out.
“The Chancellor has pledged to cut personal taxes further, with more tinkering to National Insurance looking likely, to try and stimulate growth. The latest public sector borrowing snapshot arguably offers the government even less wiggle room to bestow treats on voters.
“Borrowing in April totalled £20.5 billion, above the forecast of the Office for Budget Responsibility and overall borrowing for the year was revised upwards.
“It seems further tax cuts would come at the expense of public services. Already current government spending plans would involve a large cut to departmental budgets over the rest of the decade, according to the IFS, to meet the government’s own fiscal rules.
“With the NHS grappling with impossible waiting lists, the numbers of long-term sick have been climbing. This reduces the pools of available labour to help kick start productivity and potentially keeps wages higher, weighing on company costs, all of which is set to constrain economic growth.
“Until we see the detail in the manifestos it’s difficult to analyse specific effects on sectors of the economy. There are some broadbrush indications in Labour’s pledges which may weigh on or benefit certain industries.
“Labour’s determination to be seen as economically credible may limit its ability to make immediate inroads into fulfilling its other central pledge of saving the NHS.
“Kier Starmer has vowed to abide by tough spending rules to be seen as responsible with the country’s financial health. But at the same time, there is a plan to cut NHS waiting times and deliver 40,000 more appointments by paying staff overtime. It’s far from clear whether cracking down on tax avoidance and non-doms will provide the budget needed for this.
“The pledge to kickstart the building of 1.5 million new homes by shaking up the planning system and fast-tracking urban brownfield sites for development would benefit the housebuilders who have had to deal with weaker demand in an era of high interest rates and slow approvals of new sites. However, it remains to be seen just how quickly this streamlining of the planning system will take effect.
“Labour intends to set up Great British Energy, a publicly owned clean power firm, with the running costs to be paid through increasing the windfall tax on oil and gas company profits from the North Sea. This would mean the current Energy Profits levy, would increase from 75% to 78%. However, it’s not clear exactly how much would be raised due to the volatility of oil and gas prices.
“A levy specifically on oil and gas in the North Sea is also likely to affect smaller companies rather than larger energy giants, given that they have less capacity to absorb tax changes, and it may lead to fewer contracts being clinched in the supply chain because of this. Labour also intends to draw new licensing rounds to a close, limiting future revenues streams for companies already operating on the UK’s continental shelf.
“Labour’s promise to spend £28 billion on a green push was diluted, but the party is still planning to significantly increase investment to ensure net zero targets are within reach. This would include retrofitting more homes with insulation, which is likely to benefit companies selling insulation products but also energy companies, large and smaller who have been winning contracts to make improvements to ensure homes are warmer.
“A tougher stance towards water companies which pollute rivers and seas, is also likely to weigh further on the utilities sector. It plans to give the regulator more power to increase fines and force firms to strip executives of bonuses. Already the cost of repairs to leaky and inefficient infrastructure is a heavy future burden, and with the risk of fines becoming more severe, it’s likely to make the UK water utilities sector even less attractive.
“Given the pledges already made by the Labour government, there is likely to be a significant shake up of the public transport sector. There are plans to allow more councils to run bus franchises, and Labour has also announced a readiness to renationalise the country’s rail network by not renewing contracts with private operators.
“This is set to affect companies like First Group, which runs services in the West of England, commuter services in London and an Edinburgh to London route. Mobico also runs bus services in the West Midlands, and so could also potentially be hit by increased competition.
“However, with other train companies already taken into state control, further renationalisation would not come as a big surprise, so is unlikely to move the dial extensively in terms of share prices.
“The headline of Labour’s campaign will be the pledge to save the NHS with public concern about health services so high. The hardest part may well be delivering in office. Especially in the short-term considering the myriad of issues the NHS faces, such as funding, the ageing population, workforce issues and its complex inter-relationship with other policy issues such as social care.
“Labour may well be able to build confidence in its agenda for government by setting out a clear long-term plan early – but need to take the public with them, especially with trust in politics generally in short supply.”
Kathleen Brooks, research director at XTB: “This election has been expected for some time, so it is no wonder that UK asset prices have been remarkably stable on the back of this news. GBP/USD has given back some earlier gains, but it is still higher on the day.
“The FTSE 100 is lower on Wednesday, in line with markets in Europe and the US, as global stock indices pull back from record highs. Bond yields in the UK have surged today, but this has nothing to do with Rishi Sunak and instead was driven by the stronger than expected inflation data for the UK.
“A July 4th election date is high stakes move from Sunak. Not only is the date auspicious, American Independence Day, but he has announced it on the same day that UK interest rate cut expectations have been rapidly scaled back, which could lead to banks increasing mortgage and lending rates just before the national vote.
“There will now be no interest rate cut before the election to sweeten voters, traders are currently pricing in a mere 11% chance of a rate cut next month. Instead, the market now expects the first rate cut from the BOE in November.
“From the BOE’s perspective, this is better timing, since it will free them from any scrutiny of political bias as the election will be long gone by the time they are expected to cut interest rates.
“This recalibration of interest rates has pushed up 10-year UK Gilt yields by 10 basis points and 2-year yields by 14 basis points on Wednesday. However, if you look at bond yields from 2023, UK yields look stable compared to recent years. Added to this, while the inflation rate did not moderate as much as expected last month, the UK has made good progress on inflation and is no longer a global outlier. In fact, the annual headline inflation rate in the UK is below the US rate.
“The election comes just days after the IMF raised its growth forecast for the UK, and nearly three weeks since the Bank of England raised its growth projections and revised lower its inflation forecasts for the UK this year. Perhaps Sunak and his strategists think that this is as good as it gets for the UK economy.
“The sharp rise in commodity prices, including copper and wheat prices have pushed up the Bloomberg Commodity Price Index to its highest level since September 2023. Rising commodity prices are a threat to UK inflation, however, they are unlikely to be a problem before the UK election, but they might become a problem later in the summer. Thus, now is as good a time as any to call an election.
“It is worth noting that the latest polling data still predicts a strong win for the Labour Party. YouGov reports that they have a 30-point lead over the Tories. If this is correct, then it would end the Tories’ 14 years in power. In that time, Sunak is the Tories fifth UK Prime Minister.
“The gap between voting intentions for Labour and the Conservatives started to widen after the short-lived Liz Truss government in October 2022, and it has not recovered since then. Thus, Sunak will know who to blame if the Conservatives do lose the election on 4th July.
“The economic backdrop to this election is mixed. On the one hand the economy is growing and inflation is moderating, albeit at a slower pace than expected, but on the other hand the tax burden is at its highest level for decades, and the government is still on track to borrow £80bn this fiscal year, which limits the amount of pre-election pledges that either party can make.
“As we progress through this election cycle, the focus will turn to Labour’s economic policy. However, Kier Starmer is aware of what happened to Liz Truss when she promised to slash taxes, blowing up a fiscal whole in the UK’s balance sheet.
“Thus, his election campaign may be light on spending plans due to the tight fiscal situation that the UK finds itself in. We expect Kier Starmer and Rachel Reeves to pledge limited spending increases without raising taxes on a large scale. We also expect them both to focus on being ‘business friendly’ and trying to entrench Labour’s reputation as being fiscally responsible, and able stewards of the UK’s economy.
“Overall, we don’t see too much difference between Labour or Conservative election pledges on the economy. Both parties want to do their best to try and avoid any drama in the UK bond or FX markets, so we expect them to tread carefully going forward.
“While an election itself can be an exciting time for financial markets, during this election, we expect both parties to try and sound as boring as possible on the economy, with issues such as immigration and the NHS likely to dominate.”