On the 22nd of May, Rishi Sunak, the current Prime Minister of the UK announced a general election to be held on July 4th, 2024.
Because of the greatly improved inflation figures (2.3% in April) and discussions about a probable Bank of England base rate cut this summer, the Prime Minister seems to have taken the decision to call an election. As the economy is rebounding after a poor period in the autumn and winter it’s not a surprise he would want to capitalise on this return to positivity and perhaps catch the other parties off guard. While the initial polls still show a large majority for the labor party and very slim chances for the conservative party to win again, this article is not focused on any of the election speculations. Instead, we will look at how an election affects (if any) an economy by focusing on indicators such as inflation, interest rates, GDP growth rate, and mortgage rates.
Below is a table with some important details of the past 7 general elections;
| Election | Date | Prime Minister Appointed by Monarch (During Term) | Winning Party | Government Vote Share |
| 2001 | 7-Jun-01 | Tony Blair | Labour | 40.70% |
| 2005 | 5-May-05 | Tony Blair <br> (Gordon Brown) [a] | Labour | 35.20% |
| 2010 | 6-May-10 | David Cameron | Conservative (coalition)[b] | 59.1%[c] |
| 2015 | 7-May-15 | David Cameron <br> (Theresa May) [e] | Conservative | 36.80% |
| 2017 | 8-Jun-17 | Theresa May <br> (Boris Johnson) [h] | Conservative (confidence and supply government) [f] | 42.30% |
| 2019 | 12-Dec-19 | Boris Johnson <br> (Liz Truss) [i] <br> (Rishi Sunak) [j] | Conservative | 43.60% |
| 2024 | 4-Jul-24 | To be decided | To be decided | To be decided |
Notes:
- [a] Gordon Brown succeeded Tony Blair as Prime Minister.
- [b] The Conservative Party formed a coalition government with the Liberal Democrats.
- [c] The vote share percentage listed for the Conservative coalition in 2010.
- [e] Theresa May succeeded David Cameron as Prime Minister.
- [f] Conservative government supported by a confidence and supply agreement with the Democratic Unionist Party.
- [h] Boris Johnson succeeded Theresa May as Prime Minister.
- [i] Liz Truss succeeded Boris Johnson as Prime Minister.
- [j] Rishi Sunak succeeded Liz Truss as Prime Minister.
Inflation – UK Inflation Figures historically are shown below
Below table shows the inflation details, a few months leading up to an election and a few months after an election.
| Inflation Figures | ||||||
| Election Month | 2024 – July | 2019 – Dec | 2017 – June | 2015 – May | 2010 – May | 2005 – May |
| 5 months before | 4.00% | 2.10% | 1.80% | 0.50% | 2.90% | 1.70% |
| 4 months before | 3.40% | 1.70% | 2.30% | 0.30% | 3.50% | 1.60% |
| 3 months before | 3.20% | 1.70% | 2.30% | 0.00% | 3.00% | 1.70% |
| 2 months before | 2.30% | 1.50% | 2.70% | 0.00% | 3.40% | 1.90% |
| 1 months before | 1.50% | 2.90% | -0.10% | 3.70% | 1.90% | |
| Election Month | 1.30% | 2.60% | 0.10% | 3.40% | 1.90% | |
| 1 month after | 1.80% | 2.60% | 0% | 3.20% | 2.00% | |
| 2 months after | 1.70% | 2.90% | 0.10% | 3.10% | 2.30% | |
| 3 months after | 1.50% | 3.00% | 0% | 3.10% | 2.40% | |
| 4 months after | 0.80% | 3% | -0.10% | 3.10% | 2.50% | |
| 5 months after | 0.50% | 3.10% | -0.10% | 3.20% | 2.30% | |
The last 5 times we had an election in the UK the inflation rate dropped 3 times during the election month, stayed constant and increased once (back in 2005). In 2017 and in 2010, when the rates were above 2%, the election month saw a decline.
Graphical representation of inflation before and after elections.
Interest Rates: Below table shows the interest rate details, few months leading up to election and few months after election.
| Election Month | 2024 – July | 2019 – Dec | 2017 – June | 2015 – May | 2010 – May | 2005 – May |
| 5 months before | 5.25% | 0.75% | 0.25% | 0.50% | 0.50% | 4.75% |
| 4 months before | 5.25% | 0.75% | 0.25% | 0.50% | 0.50% | 4.75% |
| 3 months before | 5.25% | 0.75% | 0.25% | 0.50% | 0.50% | 4.75% |
| 2 months before | 5.25% | 0.75% | 0.25% | 0.50% | 0.50% | 4.75% |
| 1 months before | 0.75% | 0.25% | 0.50% | 0.50% | 4.75% | |
| Election Month | 0.75% | 0.25% | 0.50% | 0.50% | 4.75% | |
| 1 month after | 0.75% | 0.25% | 0.50% | 0.50% | 4.75% | |
| 2 months after | 0.75% | 0.25% | 0.50% | 0.50% | 4.75% | |
| 3 months after | 0.25% | 0.25% | 0.50% | 0.50% | 4.50% | |
| 4 months after | 0.25% | 0.25% | 0.50% | 0.50% | 4.50% | |
| 5 months after | 0.25% | 0.50% | 0.50% | 0.50% | 4.50% |
It’s clear in our limited pool that there hasn’t been any abrupt change in interest rates as we historically neared an election or a few months after. This helps us confirm our assumptions that interest rates are long-term indicators and that the effect of the election could only be seen at least 2 quarters (if not even more) down the line.
The Bank of England is independent of the government and so decisions to cut or raise rates should never be political but it is interesting to see that parties losing, remaining or gaining power have no noticeable short-term impact. We wonder how much government action really can impact inflation at all.
However, bank rates don’t just impact inflation. They impact the rates of mortgages and loans too. Mortgages can generally be fixed for periods of 2, 5 and 10 years, so when lenders are setting these rates, they aren’t just looking at the base rate, they are modelling how the base rate will look in 6, 12,18 or more months’ time and making a reasoned guess.
This is why rates are often not much more than the base rate and some deals are lower, the lender is confident that rates will drop and is willing to accept some risk to stay competitive as all their peers are doing the same.
GDP Growth Rates –
Above is the GDP growth rates chart historically for the last 6 elections. Out of which, the GDP growth rate is less than the previous year for only twice (2001 and 2015). In no election year was the GDP growth rate negative or 0%. We are not able to see a solid correlation in relation to the mortgage rates.
Mortgages: Below chart shows the mortgage rates over the past 2.5 decades;
Source – https://www.statista.com/statistics/386301/uk-average-mortgage-interest-rates/
Please click the link and you can track the graph interactively (as you move the cursor, you get the detailed rates). The last 5 times there were elections, the mortgage rates were in a decline. Coincidence or Market Optimism?
Conclusion: The reason for this article is not to draw a rigid conclusion as it requires a much more in-depth analysis of the election times and economic situations, but the inflation and mortgage rates analysis showed some interesting results. Is election time the best time to purchase a mortgage? Are inflation and election correlated? In hindsight, which government would like to have an election when inflation is on the rise?
By Alex Fry (Managing Director) and Ash Jatla (Junior Paraplanner)
alex@goddardfry.co.uk | ash@goddardfry.co.uk