IF history repeats itself this year, the stock market is expected to struggle as uncertainty surrounding the forthcoming general election and the traditional spring and summer lull take their toll on prices.

The election is expected on May 5 and Labour is favourite to win. The latest polls give Labour a 43% share of the vote, with the Conservatives on 31% and Liberal Democrats on 17%.

However, Labour victories have historically been bad for the market — particularly after polling day. There have been 16 elections since 1945; Labour and the Tories have won eight each. The result was predicted by opinion polls on seven out of eight occasions for Labour and six out of eight for the Tories.

The FTSE All-Share index has fallen by an average of 2.1% in the month preceding a Labour victory, compared with a typical rise of 0.45% ahead of a Tory win, according to the UK Stock Market Almanac. The FTSE 100 index has tumbled by more than 100 points from its 5,050 high reached in late February.

One exception was in 1997, when the market jumped 1.7% in the month before the Labour victory on May 1. The win had been anticipated for some time and was widely welcomed as John Major’s government was regarded as having run out of ideas.

In the month following a Labour victory, the market has dropped seven out of eight times by an average of 5.6%, according to the Almanac. The only exception was in July 1945. After a Tory win, however, the All-Share index has gone up five out of eight times, with an average gain of 0.36%.

In 2001, when the share of the vote was similar to that expected on May 5, the market slipped 2% in the month before the election and 2.4% after polling day.

David Schwartz, a stock- market historian, said: “The prospects for a good rally in the next few months are not good if history is any guide.”

Robert Hudson and Kevin Keasey from the Centre for Financial Services at Leeds University have also studied share prices on the day the election result is declared. They said: “The results from elections, including surprise results, indicate that there is a clear preference for a Tory government.” The average gain on the day of a Tory victory was 2.9% against a drop of 2.8% for Labour.

But why do investors appear to prefer the Tories? Schwartz said: “In Britain, as in America, the right-wing parties are generally considered to be better for business.”

This view seems to be borne out by the performance of the stock market since 1945. If you had invested £1,000 in shares only when Labour was in power, you would now have £2,913, according to the Almanac. But if you had invested the same amount under Tory governments, you would have £18,639, due largely to the Thatcher years.

The British stock market has lagged other countries since Gordon Brown became chancellor in 1997. It has produced a return of 44.65% since then, including dividends, compared with 65.08% for the MSCI Europe index and 67.95% for America’s S&P 500.

Some critics claim that Brown’s policies are directly to blame. He abolished the dividend tax credit for pension funds in 1997, costing them £5 billion a year. He also replaced Peps and Tessas with Isas, which have less generous tax perks, and he is widely considered to have increased the burden of red tape on business.

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