London Daily

Focus on the big picture.
Thursday, Dec 04, 2025

The looming UK election is one big gamble for investors

The looming UK election is one big gamble for investors

Brits are being asked to vote in an election that could end years of paralysis caused by Brexit. For investors, there are new risks-whatever the result.

Traders face weeks of tumult ahead of December 12, when the United Kingdom holds its third general election in four years. The vote could end over three years of Brexit uncertainty, or plunge the country's political system deeper into chaos.

Each potential outcome comes with risks for investors. One scenario is another divided parliament and no path forward on Brexit. Or Prime Minister Boris Johnson could wind up emboldened, resurfacing fears of a damaging break with the European Union. The vote could also install a left-wing government led by Labour chief Jeremy Corbyn, which investors worry would mean major structural changes to the UK economy.

"Take nothing for granted in the forthcoming election," Brian Hilliard, chief UK economist at Société Générale, warned clients in a note Tuesday. "Just ask Theresa May," he added, referring to the former prime minister who gambled and lost her majority in a risky snap election in 2017.


Advantage Johnson

Johnson's Conservatives have a solid advantage over Corbyn's Labour Party in early opinion polls. But the British public is sharply divided over Brexit, causing many voters and even some politicians to switch their allegiance to other parties. The pound is effectively trading flat as traders wait for campaigning to kick into high gear.

Investors aren't as shaken by the prospect of a Johnson victory as they were a few weeks ago. That's because the prime minister secured a Brexit deal with the European Union before he called the election, and will ostensibly campaign on getting his agreement through UK parliament. That the European Union agreed to again extend the Brexit deadline to January 31 provides added comfort.

"It looks less likely that Boris Johnson has to campaign on a hard Brexit," said Kallum Pickering, senior economist at Berenberg Bank. He expects Johnson to narrowly win a majority and subsequently get approval for his deal.

Pickering views this as the most favorable outcome for investors, since a Conservative majority would clear the way for market-boosting deregulation and fiscal stimulus in the form of infrastructure spending and possible tax cuts.

But a Johnson win - which would likely be followed by a swift Brexit in January - also poses risks. For one, the exit deal he secured with the European Union would ultimately erect significant trade barriers for many companies operating in the United Kingdom, hurting businesses that would otherwise be propped up by his policies.

Plus, Britain may not be able to work out the huge number of complex trade issues that would need to be resolved by the end of 2020, when a transition period included in Johnson's deal would expire. That raises the possibility that Britain could wind up trading with its biggest export market on highly unfavorable terms.


On the other hand...

For investors, who already face a UK economy on the brink of recession, the alternatives aren't demonstrably better.
The Labour Party, should it wind up in power, may choose to launch a second referendum that could reverse Brexit entirely. That would send the pound and other UK assets soaring. (The pound is currently trading below $1.29. Before the first referendum in 2016, it was close to $1.50.)

But Corbyn's Labour Party terrifies some in the business community. The party's manifesto from 2017, its most recent, says it would "overhaul" regulation of the financial system and nationalize certain "key" utilities. Corbyn has pledged to force large companies to give at least a third of the seats on their boards to workers, and to strengthen unions' bargaining rights.

"The economy and financial markets may either have to cope with a combination of a hardish Brexit and business friendly policies under the Conservatives or a softish Brexit and business unfriendly policies under Labour," Paul Dales, chief UK economist at Capital Economics, wrote Tuesday in a research note. "That limits the upsides for equities and the pound whatever the election result."

Dales thinks that if Labour wins a majority, Brexit would be delayed beyond January 31, after which there's a 50% chance that the party strikes of a deal that would maintain closer ties to the European Union, and a 50% chance of a second referendum.
The calculus changes if Labour doesn't score a majority, and is forced to cooperate with either the Liberal Democrats or the Scottish National Party. That could mitigate the scope of some of Corbyn's reforms.

There's also the threat of another parliament in which no party claims a majority. That would further muddle the picture for Brexit, and mean additional years of uncertainty.

"We cannot exclude the possibility that a general election in December returns another hung parliament in which the Conservative Party leads with a handful of seats short of a working majority," Goldman Sachs economist Adrian Paul wrote in a note to clients Wednesday. The result? More of the dynamics that led to the "current impasse."

Newsletter

Related Articles

0:00
0:00
Close
UK Inquiry Finds Putin ‘Morally Responsible’ for 2018 Novichok Death — London Imposes Broad Sanctions on GRU
India backs down on plan to mandate government “Sanchar Saathi” app on all smartphones
King Charles Welcomes German President Steinmeier to UK in First State Visit by Berlin in 27 Years
UK Plans Major Cutback to Jury Trials as Crown Court Backlog Nears 80,000
UK Government to Significantly Limit Jury Trials in England and Wales
U.S. and U.K. Seal Drug-Pricing Deal: Britain Agrees to Pay More, U.S. Lifts Tariffs
UK Postpones Decision Yet Again on China’s Proposed Mega-Embassy in London
Head of UK Budget Watchdog Resigns After Premature Leak of Reeves’ Budget Report
Car-sharing giant Zipcar to exit UK market by end of 2025
Reports of Widespread Drone Deployment Raise Privacy and Security Questions in the UK
UK Signals Security Concerns Over China While Pursuing Stronger Trade Links
Google warns of AI “irrationality” just as Gemini 3 launch rattles markets
Top Consultancies Freeze Starting Salaries as AI Threatens ‘Pyramid’ Model
Macron Says Washington Pressuring EU to Delay Enforcement of Digital-Regulation Probes Against Meta, TikTok and X
UK’s DragonFire Laser Downs High-Speed Drones as £316m Deal Speeds Naval Deployment
UK Chancellor Rejects Claims She Misled Public on Fiscal Outlook Ahead of Budget
Starmer Defends Autumn Budget as Finance Chief Faces Accusations of Misleading Public Finances
EU Firms Struggle with 3,000-Hour Paperwork Load — While Automakers Fear De Facto 2030 Petrol Car Ban
White House launches ‘Hall of Shame’ site to publicly condemn media outlets for alleged bias
UK Budget’s New EV Mileage Tax Undercuts Case for Plug-In Hybrids
UK Government Launches National Inquiry into ‘Grooming Gangs’ After US Warning and Rising Public Outcry
Taylor Swift Extends U.K. Chart Reign as ‘The Fate of Ophelia’ Hits Six Weeks at No. 1
250 Still Missing in the Massive Fire, 94 Killed. One Day After the Disaster: Survivor Rescued on the 16th Floor
Trump: National Guard Soldier Who Was Shot in Washington Has Died; Second Soldier Fighting for His Life
UK Chancellor Reeves Defends Tax Rises as Essential to Reduce Child Poverty and Stabilise Public Finances
No Evidence Found for Claim That UK Schools Are Shifting to Teaching American English
European Powers Urge Israel to Halt West Bank Settler Violence Amid Surge in Attacks
"I Would Have Given Her a Kidney": She Lent Bezos’s Ex-Wife $1,000 — and Received Millions in Return
European States Approve First-ever Military-Grade Surveillance Network via ESA
UK to Slash Key Pension Tax Perk, Targeting High Earners Under New Budget
UK Government Announces £150 Annual Cut to Household Energy Bills Through Levy Reforms
UK Court Hears Challenge to Ban on Palestine Action as Critics Decry Heavy-Handed Measures
Investors Rush Into UK Gilts and Sterling After Budget Eases Fiscal Concerns
UK to Raise Online Betting Taxes by £1.1 Billion Under New Budget — Firms Warn of Fallout
Lamine Yamal? The ‘Heir to Messi’ Lost to Barcelona — and the Kingdom Is in a Frenzy
Warner Music Group Drops Suit Against Suno, Launches Licensed AI-Music Deal
HP to Cut up to 6,000 Jobs Globally as It Ramps Up AI Integration
MediaWorld Sold iPad Air for €15 — Then Asked Customers to Return Them or Pay More
UK Prime Minister Sir Keir Starmer Promises ‘Full-Time’ Education for All Children as School Attendance Slips
UK Extends Sugar Tax to Sweetened Milkshakes and Lattes in 2028 Health Push
UK Government Backs £49 Billion Plan for Heathrow Third Runway and Expansion
UK Gambling Firms Report £1bn Surge in Annual Profits as Pressure Mounts for Higher Betting Taxes
UK Shares Advance Ahead of Budget as Financials and Consumer Staples Lead Gains
Domino’s UK CEO Andrew Rennie Steps Down Amid Strategic Reset
UK Economy Stalls as Reeves Faces First Budget Test
UK Economy’s Weak Start Adds Pressure on Prime Minister Starmer
UK Government Acknowledges Billionaire Exodus Amid Tax Rise Concerns
UK Budget 2025: Markets Brace as Chancellor Faces Fiscal Tightrope
UK Unveils Strategic Plan to Secure Critical Mineral Supply Chains
UK Taskforce Calls for Radical Reset of Nuclear Regulation to Cut Costs and Accelerate Build
×