UK Growth an Election Deal Breaker?

Andamento del mercato - 28/04/2015

With just two weeks to go until the next elections in the United Kingdom, the incumbent Conservatives are facing a veritable onslaught from opponents citing their mishandling of the economy. As current Prime Minister David Cameron seeks reelection, there is substantial competition from opposition party Labour and the Liberal Democrats with mounting momentum from the UK Independence Party and Scottish National Party which are seen making considerable gains on May 7th. While the election is far from decided, the sitting government is facing existential challenges it to its survival as the economy remains front and center for many voters. Cobbling together a coalition seems like an increasingly lofty goal considering the vast differences between parties and weakening support for traditional parties like Labour and the Conservatives. The economy specifically has been a contentious issue in the latest campaign as the United Kingdom faces the slowest growth since 2012.

 

A main component of GDP that has become problematic has been the drop in oil prices. Although good from a standpoint that wage growth has accelerated past inflation in the short-term, North Sea oil production which is a large component of the nation’s greater industrial production has taken a hit with the current rout in oil prices. The first quarter preliminary GDP estimates for the UK missed expectations by a wide margin, printing at 0.30% expansion versus the 0.50% forecast and dropping well below the 0.60% experienced in the fourth quarter. Annualized GDP fell substantially more, tumbling to 2.40% from 3.00% in the prior period. Chances are this could postpone indefinitely any proposed rate hike from the Bank of England as they will likely have to pivot towards even lower rates to stimulate the economy. While the economy is not necessarily in bad shape by global standards, the latest slew of bad data will not help David Cameron’s chance of staying in power as campaigning draws to a close.

 

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