Election cycles do affect economic policy making and financial markets. An election cycle consists of a series of events in the time period before the election takes place . During this time economic policies are proposed by candidates and implemented after the cycle. Financial markets are also affected with fluctuations in the prices of stocks, shares and government bonds. In addition, the current debt to GDP ratio of the country and the pledges of candidates in the election campaigns all lead to economic policy making and financial markets being affected.

Focusing on the lead up to an election, economic policy making is affected as certain parties and candidates may create manifestos, which entail proposals for new economic policies if they were to come into power. Economic policies are a key part of gaining voter interest as economics supports the functioning of society thus the way in which prospective candidates would improve the economic situation of the country is important. For example, in Labour's manifesto for the 2024 general election, the Labour party proposed to reform the job market in response to the growing levels of unemployment in the UK. They also suggested creating a new National Wealth fund which would increase investment and eventually growth. This shows the efforts the party has gone to in order to make new policies that provide solutions to the economic problems the country is facing. These policies inevitably contributed to their win in the election, demonstrating the popularity that parties can gain from the economic policies they have made. Furthermore, in the lead up to the election, the current government also want to prove to the voters that they deserve to stay in power so they may make rushed economic policy alterations or announce an election when the economic policies previously implemented have succeed. This is much like Rishi Sunak who announced the date of the general election, after stating that the economy has grown significantly, and that inflation has been reduced. This was all done with the aim impressing the voters. Yet there is a certain period after an election is called where the government is advised not to make any substantial policy changes: the pre-election period of sensitivity. Despite material changes not being made, economic policy making still occurs in the run up to formally calling an election and some leaders may even desperately attempt to pass laws or make changes before they announce an election. This is to prove to the country and the voters that they are worthy of continuing their period in power. This all highlights how election cycles do affect economic policy making.

Moreover, immediately after the election has taken place the new leader may decide to scrap economic policies that have been implemented by the previous government. Keir Starmer has already done this by refusing to continue with the Rwanda scheme of sending immigrants to the supposedly ‘safe third world country’, but presenting another solution of re-allocating the immigrants. Economic policy changes could occur but may not necessarily be affected by the election cycle. This is due to plans for economic policies largely remain the same and new ones may be made whenever it suits the ruling establishment. Russia is a prime example of this. When Putin was re-elected for the fifth time earlier this year in a supposedly ‘landslide victory’, he made little changes to his existing polices but continued with previous ones made. This included his pledge to keep the total budget spending around 36.6 trillion roubles for 2024, which he has been attempting to sustain since before the election. Therefore, in democracies new economic policies are more likely to be made as candidates need to impress their voters but need to make them popular as well because the possible leaders are accountable for their policies. However, in authoritarian regimes leaders can do what they please and will still hold power as they are able to rig the election process or refuse to hold elections at all, thus they have no need to impress by creating new economic policies.

Moving on, financial markets are also affected greatly by election cycles. Stocks, shares and bonds can be extremely volatile and change in response to real world issues. An election can create uncertainty in the markets as investors are unsure of who will become the next leader and thus what policies they will implement, which affects their investments and asset prices. This uncertainty can lead to frantic buying and selling of certain public securities. If a potential government proposes to increase tariffs, much like Trump who pledges to impose further tariffs on China, then shares for the domestic equivalent would be bought by investors who anticipate a sharp increase in their price, giving them a large return. Furthermore, in the stock market, the ‘buy and hold’ strategy of buying shares a few years before the election and then selling them just before the election, is very popular.

 Finally, bond markets are also affected by the election cycle , although not as much as other markets. The fiscal promises of the campaigning parties and current debt to GDP ratio heavily dictate the value of bonds. If the parties have proposed to spend a large amount with a weak solution of how to fund this, investors may see this as a risk as more government bonds are created, especially if the country has a large amount of sovereign debt. Therefore, the interest on the bonds increases and investors are less attracted. However, for some countries with leaders who investors perceive will not contribute as much to the sovereign debt, which is already at a manageable amount such as the UK, the bond will remain at a lower interest by the election cycle.

 Overall election cycles do affect economic policy making and financial markets as great uncertainty is created when there is a change in the leader. However, the extent to which they are affected or even affected at all depends upon the nature of the government e.g. democratic or authoritarian but also on the electoral system. Financial markets are also based upon external predictions but economic policy making is usually done by those involved directly with the election cycle. Therefore, financial markets are likely to be less affected as their value changes due to factors other than who the next leader will be. 

REFERENCES:

1. June 2024, Labour Party Manifesto : Our Plan To Change Britain, Labour  https://labour.org.uk/updates/stories/labour-manifesto-2024-sign-up/#:~:text=Labour's%20manifesto%20for%20change%20is,the%20change%20the%20country%20needs. 

2. Neil Johnstone,May 2024,’Pre election sensitivity’,House of commons library https://commonslibrary.parliament.uk/research-briefings/sn05262/ 

1. Darya Korsunskaya,May 2024,’Putin pledges over $126 billion in public spending as election looms’, Reuters https://www.google.com/url?q=https://www.reuters.com/world/europe/putin-pledges-over-126-billion-public-spending-election-looms-2024-03-11/&sa=D&source=docs&ust=1720976497262424&usg=AOvVaw2ilHAZ4WYPv4WD6v3wzSGW 

1. July 2024, Al Jazeera,’Keir Starmer says he is scrapping Uk’s Rwanda migrant deportation plan’ 

https://www.aljazeera.com/news/2024/7/6/keir-starmer-says-scrapping-uks-rwanda-migrant-deportation-plan 

1.  Tom Stevenson,July 2024, ‘Labour And You: What The Election Means For Your Finances’,Fidelity 

https://www.fidelity.co.uk/markets-insights/personal-finance/personal-finance/labour-and-you-what-the-election-means-for-your-finances/ 

1. Clive Walker,June 2024,’How do elections affect the Stock Market’,Economics Observatory 

https://www.economicsobservatory.com/how-do-elections-affect-the-stock-market#:~:text=General%20elections%20affect%20stock%20markets,newly%20installed%20government%20become%20apparent.