Gordon Brown has until June 2010 to call an election. But even though the Prime Minister has said that it was "almost completely wrong" to be thinking about an election while the economy is in crisis, that hasn't dampened speculation that he may ask voters to the polls as early as next summer.
There are two schools of thought on why the PM may not be true to his word.
Some say he may be looking to take advantage of the 'bounce' in popularity that Labour has experienced in the wake of the financial crisis. The latest YouGov poll shows that 40 per cent of people think Brown and Darling are best placed to lead the country through recession, against 31 per cent for the Tory team of Cameron and Osborne. Mr Brown is, so the thinking goes, the only man who can lead the country through such turbulent times with his quick and decisive handling of the crisis, a model for other world leaders to follow.
Others argue that he's digging himself further into a hole largely of his own making, and reckon that spring or summer 2009 may in fact be his last chance to win. If, as many commentators suggest, 2010 marks the true nadir of the economy, Brown may decide that it's best to woo voters while there's still hope among the electorate that the UK will emerge from its slump sooner rather than later. And while – with unemployment predicted to top 3m - 1.2m more people still have jobs.
So, while recent history tells us that stock markets don't really pay much attention to general elections, an early election may at least be a portent that expectations of a rapid economic recovery are premature. And that means that it is still too early to jump back into cyclical sectors like retail, leisure and transportation.
Events of the last few months have rendered comparisons with recent history redundant anyway. Before the last election we wrote that consensus-politics and Labour's seemingly unassailable lead meant that politics had lost the ability to surprise the markets. We also said that a non-committal pre-budget report wouldn't have too much bearing on equities.
Not so this time. The pre-budget report has fuelled an explosive debate. Brown and Darling think huge borrowing and spending will save the economy – the Tories counter that this strategy will soon require huge tax increases and create a damaging legacy of indebtedness that our children will pay for over decades.
An early election could, then, have more direct consequences for UK companies than has been the case in the recent past. If the Tories win an early election, the pre-budget report is certain to come in for scrutiny. And that could mean that that any slim hopes of grand, tax-payer funded infrastructure projects that will save the economy may be short-lived, bad news for companies that are targeting revenues from state-funded building projects. A reversal of the huge Labour-driven expansion of the public sector would also be a very real possibility, which means companies that have touted the 'safe-haven' of government contracts may soon see their gravy train running dry.
