The 58th UK general election will be held no later than 28 January 2025. However, it’s now widely expected to take place in the autumn sometime (possibly October). Here’s how it might affect the UK stock market.
According to figures complied by AJ Bell, the FTSE All-Share — an aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap indexes — has recorded a double-digit gain on average the first year after a government has been booted out.
That’s from 16 general elections stretching back to the index’s formation in 1962.
Below are the average percentage-based capital returns from the FTSE All-Share:
|1 year before poll
|1 year after poll
|Term of government
|Change in government
The latest polls strongly suggest that a new government is likely. That is, Labour is favourite to replace the incumbent Conservative administration.
According to the historical data above, that’s a good sign for the stock market, both in 2025 and beyond.
That said, the figures also suggest UK stocks do slightly better on average when it’s a new Conservative government that wins.
Nothing is certain
Intuitively, this makes sense. New governments win in large part because of promises to boost economic growth and jobs. So it would be counterintuitive if the stock market didn’t start pricing in this possibility.
However, it’s important to remember that this isn’t a foregone conclusion. After all, global economic forces are arguably more important to near-term share prices than domestic economic policies.
For example, if a crisis rocked the global economy in 2025 and major stock markets crashed, it’s unlikely the FTSE All-Share would emerge unscathed just because a new government was sat in Downing Street.
The long view
For me, one of the great joys of being a long-term investor is that I don’t really have to worry about any of this. I’m building for retirement, so whatever happens from one election to the next is largely irrelevant. Also, my portfolio is invested globally.
Long term, we know the stock market goes up more often than it goes down. Even after world wars, financial meltdowns and pandemics, it has always bounced back and gone on to new highs. It just takes time.
That’s the real lesson of history.
A high-quality stock
Regardless of what happens at the ballot box, one FTSE 100 share I’d buy today with spare cash is Ashtead Group (LSE: AHT).
Trading under the name Sunbelt Rentals, this is the UK’s largest plant hire company and second-largest in North America. It rents out everything from traffic cones to cranes and diggers.
There are three things I like here. First, Ashtead has been snapping up smaller rivals for years. It made 16 bolt-on acquisitions in its fiscal H1 (which ended 31 October). Despite this, the industry remains fragmented, making it ripe for further consolidation.
Second, its US business should benefit directly from the federal mega-construction projects underway there. This includes the $280bn CHIPS Act and the even larger Inflation Reduction Act.
Now, the construction industry is cyclical, so this stock can be quite volatile at times. But the valuation looks enticing, with the shares trading at 17.1 times earnings versus 18.4 for its larger rival United Rentals.