Two swallows may make a summer of investment

It’s unlikely to be news to anyone that the road to recovery has been long and winding for the UK economy. But yesterday, there were two pieces of welcome news for businesses across the country.

In the afternoon rain, Prime Minister, Rishi Sunak, announced that a General Election will take place on 4 July. While there had been speculation about the date for some time, most believed UK voters would be heading to the polls in the autumn. According to some reports, the news was even a surprise to some of Sunak’s MPs.

The announcement came just hours after ONS figures showed that UK inflation had slowed to 2.3% - its lowest in almost three years.

I wrote back in October about my belief that the next general election would be won on the economy, and it’s clear the Prime Minister sees an opportunity for re-election, based on inflation edging towards the Bank of England’s inflation target of 2%. While pinning an election on inflation alone in today’s global economic environment is risky, things are indeed looking better for the UK.

Notwithstanding persistent challenges, shoots of optimism are returning to business, with increasing output in the manufacturing sector, and consumer confidence edging up in April.

Whether these factors will be enough for Sunak and the Conservative Party is anyone’s guess, but if the polls are anything to go on, the odds are stacked in Keir Starmer’s favour. Our own research among business owners in Q4 2023, found that a third believed Labour would best serve them, compared with 26% who felt the Conservative Party better reflected the needs of enterprise.

Though we will now enter a period of campaigning - which will inevitably see markets fluctuate – longer-term, both announcements could act as stimulus for economic stability and growth. In fact, data from our latest SME Confidence Tracker showed that two-fifths of businesses were postponing capital expenditure until after a general election, and 53% were holding off investment until interest rates fall – a more likely scenario given yesterday’s inflation data and the IMF’s recommendation that rates should fall to 3.5% by the end of 2025.

So, whatever the outcome on 4 July, it will at least bring some political stability for UK businesses, encouraging them to dial-up investment. And, after the past four years of pandemics, political substitutions, and price rises, this is precisely what the country needs to prosper.