Investors and Businesses Buoyant After Conservative Landslide

UK Businesses have enjoyed one of their best evenings since the EU Referendum in 2016 as Boris Johnson’s victory looks set to have ended the Brexit deadlock that has plagued the UK markets for 3 years.

Many UK businesses that had been suffering from uncertainty made significant gains, including those in the utilities, banking and retails sector.  Big winners from the evening included Virgin Money, who gained 14%, JD Wetherspoons (11%), Marks & Spencer (9%) with almost all the Supermarkets making at least 2% gains.

The sectors that saw the largest increases across the board were those that had been hampered by predictions of a hard Brexit or threatened with some form of nationalisation had Jeremy Corbyn’s Labour party been victorious.  Construction was a big winner from the evening with Barratt, Berkeley Group and Persimmon all seeing huge increases, and utilities and services companies such as Centrica and Energy Group SSE, which had been anxiously waiting to see the results enjoyed rises between 8-10%

Nigel Green, Chief Executive of Devere Group said, “With more political certainty due to the large majority, the UK economy is likely to receive an election bounce.

“Billions of pounds in business investment that has been on the side-lines due to the parliamentary paralysis is now ready to be unleashed. This will give a much-needed boost the slowing British economy.”

The Prime Minister was also congratulated on his election victory and what it meant for British business by, British Chambers of Commerce Director General Dr Adam Marshall who said,

“Restoring business, investor and consumer confidence – and firing up the economy – must now be the Prime Minister’s top priority.

“Campaign slogans must give way to a renewed focus on the details that matter. Our business communities need to see swift, decisive action to avoid a messy and disorderly exit from the EU and to tackle the barriers holding back investment and growth here in the UK.”

The BCC also stipulated that Businesses’ priorities for the new government include:

• Avoiding a no-deal exit from the EU and delivering a smooth transition giving firms time to prepare.
• Acting rapidly to reform business rates and replace them with a fairer system.
• Pressing ahead with improvements to transport infrastructure including HS2, Northern Powerhouse Rail and additional capacity at Heathrow.
• Investing in skills bases and reforming the Apprenticeships Levy so that more small firms can access high-quality training locally, at affordable cost.
• Delivering a sensible immigration system that gives firms access to essential overseas talent at all levels.”

What is clear is that following the Conservative government’s landslide victory, businesses will hope to see Johnson address all these issues that have plagued British business for the past three years.  The hope is that now, with a clear majority, resolutions can now be reached and businesses can move forward.

POUND SURGES

In addition to the gains made by UK businesses, as news of the Conservatives majority victory was announced on Thursday night, the pound enjoyed a surge greater than any it has seen in almost 3 years.

At 10pm as soon as the exit polls were announced, the pound soared to $1.35, an increase of 3 cents, and talk of it hitting $1.40 are being seen as conservative by analysts, many who see the pound climbing higher in the days ahead.

Adrian Lowcock, head of personal investing at Willis Owen, said “Investors are going to be relieved, and the pound has already rocketed on the back of the exit polls as fears of a hung parliament were removed. In terms of markets today, a Conservative majority is likely to be well received as it unlocks the political process, gives some certainty over Brexit and removes the risks of the anti-business policies of the labour manifesto, such as nationalisation.

“Usually the FTSE 100 would be expected to fall in reaction to a strengthening pound, but the result – combined with positive noise around US/Chinese trade negotiations – should be a positive combination today.“

This positivity is being echoed by investors across the board, with some predicting bullish behaviour to last into the new year.  Ivan Sedgwick, Investment Director at LGB & Co said: “The relief rally on the back of the election results may last through to early next year, the test will come when trade talks with the EU restart. We can assume that at least some of the underweight in the UK taken by international funds will reverse, which will create follow through demand. However, these decisions don’t happen overnight, but again until the trade situation is resolved they will remain wary, and it won’t be a 180° reversal. At least some postponed investment decisions in areas where political risk was high (e.g. infrastructure) will now go ahead. So overall positive, save for pure foreign currency earners with sterling cost bases.”

As the election dust settles, the future may be looking a little brighter for UK business and investors, although if one thing is certain about Brexit, it’s that nothing is certain.  What happens when trade talks between the UK and EU resume in January is remains to be seen.

Headline image: Dianna Bonner for Financial Times