The Tories hit a record poll low as UKIP hits a record high

With Cameron's party on 27% and Farage's on 17%, the gap between them is now smaller than the gap between Labour and the Tories.

In the week since the local elections, the Tory party has appeared anything but calm in its response to the UKIP surge. MPs have demanded an early EU referendum to give David Cameron a "mandate" to renegotiate Britain's membership (a referendum on a referendum, in other words), Jacob Rees-Mogg has called for a full-blown coalition, with Nigel Farage as Deputy Prime Minister (presumably after he's gone to the trouble of actually winning a seat) and Cameron has hurriedly brought Nadine Dorries back into the Conservative fold after rumours that she was on the verge of defecting to the Farageists.

Unfortunately for the Tories, then, today's YouGov poll will do little to calm their nerves. It puts them on a record low of 27 per cent (their worst rating not just since the election, but ever) and UKIP on a record high of 17 per cent, with 25 per cent of 2010 Conservative voters (excluding don't knows and wouldn't votes) telling the pollster that they would vote for the purple peril. The gap between the Tories and UKIP - ten points - is now smaller than the gap between them and Labour - 11 points. Labour's rating of 38 per cent is it worst since February 2012 but the even smaller Conservative share means Miliband would still win a majority of 108 on a uniform swing.

For Cameron, the risk between now and the election is that such polls will prompt Tory MPs to begin forming their own pacts with UKIP. While Farage has consistently said that Cameron is an insurmountable obstacle to a national arrangement, he has long made it clear that he is willing to consider local deals. As he told the Spectator last May, "What I do know is there are Conservative Associations up and down the country who think this could be a way forward… So all I would say to you is that in terms of co-operation or deals or anything in the future, firstly it’s some way off but secondly, I can see that there are associations thinking along the lines that if they approach us. Would I entertain and contemplate such ideas? Of course I would."

A string of mini UKIP-Tory pacts would force Cameron to choose whether to disown the candidates in question (triggering a Conservative split) or be seen to give in to Farage. With UKIP likely to enjoy another surge after next year's European elections, the dilemma will not go away. While Farage's party will still be lucky to win even one MP in 2015, it has the potential to prevent the Tories winning many more. At the last general election, with a UKIP vote share of just 3 per cent, there were 20 constituencies in which the UKIP vote exceeded the Labour majority (one shouldn't make the error of assuming that all those who supported the party would have backed the Tories in its absence, but many would have done). If UKIP starts to look as if it could determine whether the Tories remain the single largest party (an overall majority, always unlikely, now looks impossible), then the pressure for a rapprochement of the right will become overwhelming.

David Cameron speaks at a press conference at the EU headquarters on February 8, 2013 in Brussels. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Show Hide image

Promoted by Janus Henderson

Europe: as the politics subside

How long can a resurgence of investor interest in Europe last?

Might Europe be the place to be?

I think European equities tick a lot of the right boxes right now. Economies are recovering – indeed the first quarter of 2017 saw Europe once more grow faster than the US, having outpaced the world’s largest economy in 2016. Valuations are not excessive, either relative to the region’s history or the US equity market. Like almost anything, I believe European equities also look compelling relative to bonds. The final part of the jigsaw puzzle might have been earnings growth, but here too Europe is, at last, getting close to achieving a gold star.

Most of this has been known for quite a few months now and is part of the explanation for the better performance of Europe year to date. Even the euro has strengthened against the US dollar, from about $1.05 at the start of 2017 to $1.12 at the time of writing. Politics looks more settled, after the surprises of the Brexit vote last year in the UK and the election of Donald Trump in the US Presidential election. Perhaps a comment I made at the beginning of 2017, that “by the end of 2017 the UK and the US might look to have been the exceptions” when it comes to successful populist votes, seems more prescient.

Now that the political backdrop is perhaps more settled, with the UK’s potentially tragic Brexit decision an exception, how long can a resurgence of interest in Europe last? One threat is the gradual move towards ‘tapering’ by the European Central Bank (ECB) of its unprecedented quantitative easing program, and the support this provides economies by injecting cash to drive down the cost of borrowing and increase consumer and business spending. But it is already clear that this will be a very slow process. The economic recovery in Europe remains quite slow and inflation, outside the UK, is well below the ECB’s target of ‘below or close to’ 2%. At the same time, the damaging effect of negative interest rates needs to be avoided.

 

What could derail this market?

The one exception to what looks to be a relatively rosy scenario, in my view, remains the UK. The Brexit ball is rolling onwards, following the invocation of the now infamous Article 50, but the calling of a General Election was another distraction. The UK is still no closer to knowing what sort of Brexit is desirable, or more likely, economically feasible. Once the reality of debt, demographics and a weak currency become clear, I suspect that the UK market will continue to struggle against other European peers.

Elsewhere in Europe, economies look well set, and I suspect that more capital spending and investment are likely to be incentivised with tax cuts in Europe, again outside the UK. In this scenario, those capital investment-related names such as Siemens, Legrand and Atlas Copco should continue to do well. Luxury names, and auto makers, many of which have rallied hard so far in 2017, are likely to struggle due to subdued consumer demand. Financials have also seen mixed performance so far, with insurance underperforming banks. This seems an anomaly given the paramount importance of long-term savings to cater for retirement.

It would be entirely healthy for European markets to drift through what will hopefully be a quiet summer, without shocks such as Brexit to contend with. I think all seems well set though for European markets to trade higher than current levels by the end of 2017.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. Issued in the UK by Henderson Investment Funds Limited (reg. no. 2678531), incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE, is authorised and regulated by the Financial Conduct Authority to provide investment products and services.

0800 7318496