After weeks of waiting, and what feels like months of campaigning, the day where the British public go to the polls is finally here. Despite the best efforts by the fringe political parties, it still comes down to a choice between blue and red – between the Labour Party and Ed Miliband, or the Conservative Party and David Cameron.
No matter who emerges victorious, no matter what possible alliances will need to be created in order to form a government, there will be an impact on the financial markets.
If David Cameron’s Conservative Party remains in power, then there will be an element of relief across the board – if only because it will assure the markets that there will be no real change in policy, and there should be no real surprises in store. The GBP will likely strengthen, and the result will probably cause a positive bump in the FTSE.
However, if the Labour party does indeed regain power, then the story will likely be very different – and for a number of reasons. Firstly, Mr Miliband has made his position very clear when giving his view on issues like the “Non-Dom” tax status. In a law stretching all the way back to the year 1799, non-domiciled (non-dom) status can be claimed if you are living in the UK, but if your father or grandfather was a resident of another country, where you were born. This means that you do not have to pay any UK tax on money earned outside of the UK.
At present there are approximately 116,000 non-dom residents within the UK, and they tend to be quite wealthy. Tax barristers have warned that 30,000 of these residents could leave the UK under Ed Miliband’s plans to abolish this unique tax status.
The other issue is concerning who Labour will have to form a coalition with, if they are to form a government. The likely partner is the Scottish National Party, with the UK Independence Party and the Green Party considered to be rank outsiders. There is no ideal scenario no matter what the outcome… and the markets will know this. How severe the reaction to a Labour / A.N.Other Party victory will be remains to be seen.
As always, what is or utmost importance is to ensure that any positions which you might have in the markets are managed correctly from a risk perspective. Regardless of the outcome, there should never be a situation where uncertainty of the leadership of the UK would lead to unnecessary and unacceptable losses within your trading account. At the Shaw Academy of Financial Trading, we can’t help if the topic is political – but we can most certainly help when it comes to a full and complete risk management strategy.
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