UK General Election
News & Analysis

How to trade the UK General Election

The UK general election took place on 4 July 2024, and resulted in a Labour victory, in line with polls for seat count but underperforming on vote share. Though the UK election did not cause a major shift in global markets, partially due to full pricing of the expected outcome, it remained an important event for traders exposed to UK stocks, GBP or bonds.

Market responses: past elections

Market reaction to recent elections has varied. The most recent Conservative victory in 2019, saw a strong positive reaction from stocks, while their less decisive 2017 victory saw volatility across major markets. The market reaction to any result would depend on how decisive it is, how closely it aligns with opinion polling, and what the expected policies of the incoming government are.

Opinion polling: Labour far ahead

The eventual result, with a landslide victory in terms of number of seats on a relatively low share of the popular vote, was in line with opinion polls. Opinion polling had consistently suggested a major victory by the old opposition party, Labour. Historically Labour has been seen as less pro-business than the Conservative Party, and stock markets have tended to perform well after decisive Conservative victories.  This time, markets traded sideways following the election, with slight selloffs over subsequent days in the FTSE100.

Interpreting results

How a given result is interpreted, as well as the share of seats between the two main and minor parties, depends on the factions in power within each group. Either way, a decisive win with a stable majority is normally seen as a net positive by market analysts.

What are the General Elections in the UK?

UK General Elections are fought in 650 constituencies, with the main two parties normally running a candidate in every seat. Whichever party can command an absolute majority after the election, either alone or in coalition, will form the next government. The only two parties who have won an election since 1906 are the Conservatives and Labour, but smaller parties, like the Scottish National Party and Liberal Democrats have a limited but significant influence.

In previous elections, research suggests that markets perform well in the run-up to elections where the likely winner is clear – like 1997’s Labour landslide. Conversely, when opinion polling suggests a close or uncertain outcome, stock markets tend to sell-off in the run-up to the election, as seen in 2010’s narrow Conservative victory with Liberal support. Polling showed that this election was not seen as particularly uncertain.

Polling and likely market results

Since 2021 / 2022, opinion polls have consistently shown a large lead for the Labour Party. This did not change significantly during the general election campaign, despite the rise of third-party challengers on both left and right. Looking at previous market tendencies, a reasonable prediction would be strong stock markets in the run-up to the election, perhaps followed by some weakness after the result since the market’s usual ‘preferred’ party would have decisively lost. In fact, markets reacted with indifference to the result, with slight selloffs in sticks but a continuing sideways trend.

Stocks and GBP reaction

The largest market impacts involved FX and stocks. Stocks followed the above pattern of pre-election strength before some volatility after Labour’s victory, while the British Pound performed well before and after the election. British government bonds move counterpoint to stocks, seeing gains in stock market volatility and slight losses when stocks perform well. The overall reaction was muted in all asset classes.

Infrastructure and housebuilding

Neither party is likely to radically change the UK’s trade policy, or renegotiate Britain’s relationship with the EU, so this election is unlikely to create the dramatic price swings seen following the 2016 Brexit referendum. CFD traders should look for impacts on specific stock sectors such as housebuilders, since promises about infrastructure and state spending are often made in the run-up to the election. The markets most expected to be impacted by the UK general election are stocks or market sectors seen as winners or losers on specific policy points. UK rail stocks, which the Labour Party has promised to nationalise, may be strongly impacted. Traders will need to monitor political developments after the election to see if Labour follows through on its plans for nationalised rail and a state-backed energy company.

Why trade the UK General Election with ADSS?

ADSS offers traders access to key markets impacted by the UK’s general election, including UK stocks, ETFs, indices, and GBP-linked currency pairs in FX.

Because our markets are traded as CFDs, ADSS clients can take a buy or sell position without owning the underlying asset.

Preparing your portfolio

Unlike globally significant elections such as the 2024 American Presidential Election, the next UK general election was never likely to cause a massive realignment in global markets. But the impact on UK stocks, the GBP, and regional equity markets was locally significant. Even now, traders can look for opportunities and hedge against risks in specific single sectors such as railways or infrastructure. This requires keeping a close eye on ongoing political developments since promises around spending and infrastructure are not always met once the reality of governing sets in.

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