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TORY VICTORY BRINGS ELEMENT OF CERTAINTY

Graham Davies
Graeme Davies writes for Investors Chronicle

06 January 2020 | Graeme Davies


The Conservative Party’s victory in the general election has delivered an element of certainty to the political system, which has been in limbo ever since the European referendum in 2016. 

Politics have been in flux ever since the Leave victory, which left equity markets and the business community in an uncertain position, with Brexit widely blamed for a reluctance on the part of businesses to invest, contributing to a drag effect on the UK’s economy. 


Boris Johnson’s majority at least injects some certainty into our politics. Indeed, the day after the result, equity markets in London surged. FM-related stocks were in demand, with shares in companies such as Capita, Kier, and Babcock International up by about 7 per cent. 


Johnson will seek to accelerate plans to exit the EU by the end of January with an ambitious target of sealing a trade deal to complete the divorce by the end of 2020. For the FM industry there is some conviction over the direction of political travel and indications given by chancellor Sajid Javid in the Autumn Statement, and by the party during its election campaign, show the Conservatives intend to ease the squeeze on public spending seen during the austerity years. This could result in a rise in public spending on infrastructure with pledges for hospital upgrades and new health facilities already made. This is likely to benefit FM companies with construction divisions and could lead to future FM contracts as management and operation of assets is outsourced. 


It’s likely the incoming government will increase private sector involvement in the provision of public services and this could be a boon to firms in the FM sector, particularly those operating in health and social care, education and defence. 


But that great blocker to business investment, uncertainty, will not go away in a hurry. The UK must strike its own trade deals, first with the EU and then the US. Finalising such deals could take years, so predicting the shape of the UK economy in five years remains difficult. 


There may be more work coming the way of UK-based FM companies but they could face increased competition from overseas operators – US companies in particular – looking to grow their presence in the UK. 

Uncertainty will linger over how UK companies with operations overseas will operate in those jurisdictions and how the UK severing itself from the EU project will affect European operators such as Sodexo and ISS competing in the UK market. 


So while the Conservative majority creates certainty on one level, a whole host of new imponderables have emerged and it will take a long time for the fog to lift. 


Graeme Davies writes for Investors Chronicle