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Britain’s shock summer election expected to deliver ‘historic’ result

British Prime Minister Rishi Sunak makes a statement in the rain outside 10 Downing Street, announcing that the British general election will take place on July 4 in London, United Kingdom, May 22, 2024.

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British Prime Minister Rishi Sunak this week ended months of speculation by announcing national elections on July 4, as forecasts suggest his right-wing Conservative party will likely be ousted after 14 years in power.

News of the vote came as a surprise to the public, the media and much of Sunak’s party. It was due to take place in the fall, before a deadline of January 28, 2025, which would give the Conservatives more time to turn around the weak polls in which they have trailed the center-left Labor Party for more than two years .

Speaking while drenched in rain at a press conference outside 10 Downing Street on Wednesday, Sunak said: “Uncertain times call for a clear plan and bold action.”

He stressed that recent economic data played an important role in his decision-making, telling the BBC’s “Today” show on Thursday that inflation had “returned to normal”, the economy was growing and that wages were “increasing sustainably.”

Price growth in the UK has slowed from a peak of 11.1% in October 2022 to 2.3% in April 2024, according to figures released on Wednesday, after the Bank of England politically independent, has increased its interest rates for 14 consecutive meetings.

UK election result will be 'historic', politics professor says

The UK economy fell into a mild recession in the second half of last year, before recording growth of 0.6% in the first quarter of 2024.

“I think it’s clear that while there is work to be done and people are just starting to feel the benefits, we have turned a corner and brought back economic stability,” Sunak said.

“As good as it gets”

Bronwen Maddox, director of the Chatham House think tank, said the timing of the election shocked many conservatives who thought it would be held closer to the US election in November.

“I have to infer that (Sunak) thinks this is as good as it gets… you can start to hear signs that the economy is doing better, that house prices are rising, that there has fewer worries about energy bills, but I’m surprised he did “I’m not going to give him more time to feed,” Maddox told CNBC by phone.

Although Wednesday’s inflation figures showed a sharp cut in the policy rate, close to the Bank of England’s 2% target, they were higher than many economists had expected.

As a result, market bets on an interest rate cut over the summer have fallen, and it now appears unlikely that the central bank will do so on June 20, its last meeting before the election.

Labor is now expected to focus on criticizing the Tories’ 14-year legacy and its own ability to maintain fiscal discipline, Maddox said, while keeping its policy agenda relatively light on details.

She will also try to avoid discussions about the UK’s relationship with Europe after Brexit, migration, the war in the Gaza Strip and the current government’s controversial plan to send asylum seekers to Rwanda , she added – so many subjects which strongly divide its members. .

Shadow Chancellor Rachel Reeves, Labor Leader Sir Keir Starmer and Deputy Leader Angela Rayner attend an event to launch Labor’s election promises at the Backstage Center on May 16, 2024 in Purfleet, United Kingdom.

Leon Neal | Getty Images News | Getty Images

Figures released on Thursday show net migration to the UK fell 10% in 2023 from a record level, which Home Secretary James Cleverly presented as a victory for the government.

“Whatever happens, it will certainly be a historic election,” Hannah Bunting, a lecturer in British quantitative politics at the University of Exeter and co-director of its election center, told CNBC’s “Squawk Box Europe” on Thursday. .

Labor needs a 12.7% rise in the national vote to secure a parliamentary majority of just two votes – greater than that achieved by Tony Blair, who ousted John Major in 1997 following a popularity surge – a she declared.

“I think this will be an election that we’ll talk about for a while, whether it’s because Labor won a landslide victory or because the Conservatives were wiped out, as some commentators expect,” Bunting said.

“I’m not 100% convinced of this yet, because we’ve had local votes recently… and although the Conservatives have performed very poorly in these areas, the real winners have been the smaller parties and independents rather than Labor. This also translates into a general election, so this landslide victory for Labor seems much less certain.

Market reaction

Although news of the election shook the political establishment, it did not have much impact on the markets.

Adrien Pichoud, chief economist at Bank Syz, said that for investors it had been clear for some time that there would be a change of government this year and that the actual date of the vote was of limited consequence.

UK stocks traded slightly lower on Thursday, bucking a wider trend, although this also followed Wednesday’s inflation data and revised interest rate expectations.

Sterling’s reaction was also muted, moving slightly higher against the US dollar and lower against the euro.

“Unlike some periods in the past, this time around a Labor government is not seen as a risk scenario; in fact, investors seem supportive of the idea,” said Roman Ziruk, senior market analyst at global financial services company Ebury. E-mail.

“This is partly due to the party’s shift towards the political center since the last elections,” Ziruk added.

“Investors want stability, and we are now at a stage where a Labor majority, although strongly integrated, would probably be seen by them as a slight positive for the pound, if only to avoid a formidable parliament without majority.”

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