Global Perspectives

How the midterms, budgets, and upcoming elections will shape investment in 2027

For much of the decade and a half after the global financial crisis, it was easy to think of the price of capital as largely a central bank matter.

Official rates fell close to zero, central banks bought bonds on an unprecedented scale and borrowing costs followed them down. Investors became accustomed to plentiful, cheap money.

That assumption has become harder to sustain. Interest rates are again meaningful, and government debt is far higher. At the same time, the demand for capital has broadened.

Defence and energy security now require investment on a scale that would have seemed unlikely a decade ago. Artificial intelligence is generating another wave of spending on data centres and power, while ageing populations and the reorganisation of supply chains add pressures of their own.

The price of politics

Politics is moving closer to the centre of this calculation. The British Budget on 28 October and the American midterm elections six days later illustrate why.

Britain is trying to preserve investment while operating with limited fiscal room. In the United States, divided government now sits alongside an economic strategy in which tariffs, technology and industrial policy have assumed much greater importance. Several European countries enter 2027 with elections approaching and very different degrees of financial freedom.

For investors, the issue is increasingly practical. A project may make economic sense today, but its value can change considerably if the policy framework around it does not last.

The American midterms sharpen that point. Democrats took control of both the House and the Senate, giving them the ability to block much of President Trump’s domestic legislative programme and to subject the administration to greater congressional scrutiny¹.

The difficult Democratic next steps

This was not, however, an uncomplicated mandate for a Democratic programme. The AP Voter Poll suggests that dissatisfaction with Trump and Republican control was at least as important as enthusiasm for what Democrats might do next. The party also recovered ground among groups that had shifted towards Trump in 2024.^[1]

Nor is the coalition that delivered the victory especially uniform. It stretches from moderates elected in competitive states and districts to a larger progressive and democratic socialist wing.

That range of opinion helped Democrats win. Governing is a different matter. Substantial differences remain over fiscal policy, and the coalition is no more homogeneous on energy or foreign affairs.

A divided government will make sweeping domestic legislation harder, while leaving important presidential powers intact. Trade provides the clearest example. Congress has constitutional authority over tariffs, yet over time it has delegated considerable power to presidents when national security or unfair trading practices are at stake.

President Trump has used those powers extensively². The midterms may curb him at home without producing any corresponding reversal in American trade policy or strategic competition with China.

Behind the political contest sits a less negotiable constraint: the federal balance sheet. In 2026, the United States is projected to spend more than US$1 trillion simply servicing its debt, more than total defence outlays of about US$918 billion. By 2036, annual net interest costs are projected to reach US$2.1 trillion, almost as much as all federal discretionary spending. Debt held by the public is projected to rise from about 101% to 120% of GDP over the same period³.

Once interest absorbs sums larger than defence, debt service becomes harder to treat as background accounting. Washington still enjoys formidable advantages, including deep capital markets and the world’s principal reserve currency. Still, a growing share of federal resources is already committed before any new priority is considered.

Political choice remains wide; exercising it is becoming more expensive.

Burnham’s Britain and Europe

Britain’s constraint is more immediate. The October Budget sought to support households and businesses while preserving investment and avoiding broad increases in the main rates of income tax, National Insurance and VAT. It also expanded the capacity of the National Wealth Fund and British Business Bank, directing more capital towards industrial development and strategically important investment⁴.

Reconciling those ambitions with the public finances is the difficult part.

The Office for Budget Responsibility describes the Government’s margin against its fiscal rules as small relative to the risks surrounding the forecast. Debt interest, meanwhile, is running at around twice its average share of GDP in the decade before the pandemic⁵.

The phrase “fiscal headroom” may obscure what is really being measured. It is a forecast margin, not a cash reserve, and can narrow quickly if growth disappoints or borrowing costs rise.

Elsewhere in Europe, the starting points vary sharply. France enters its 2027 presidential election with a projected deficit of 5.7% of GDP and debt above 120%. Italy’s deficit is lower, although debt is projected at about 139%. Greece presents a very different picture, with its budget expected to remain in surplus while its debt ratio continues to decline⁶.

The fiscal positions differ, but many of the demands do not. European governments need to strengthen defence and energy security while improving competitiveness, and they must do so alongside the ongoing costs of ageing populations and established welfare systems. Some countries have considerably more room to respond than others.

Building in the long-term

For a long-term investor, politics consequently enters the calculation more directly than it once did. In developed economies, the risk is rarely expropriation or capital controls.

More often, the economics change after the money has been committed. A subsidy disappears after an election. New tariffs affect access to an important market. A change in tax or regulation alters assumptions on which the investment was originally made.

The problem becomes more acute where assets have long lives. A grid, semiconductor plant or data centre may operate for decades. Today’s favourable policy matters less if the economics cannot survive a change of government or a less generous fiscal environment.

When confidence in that durability weakens, capital does not usually disappear. Its terms change. Investors may require a greater return, or insist that more of the risk is protected contractually or borne elsewhere. The resulting additional cost is the political price of capital.

The mismatch between public ambition and public balance sheets also creates an opportunity. Defence and energy security are obvious cases. Climate resilience and the costs of ageing will require investment on different timescales, while artificial intelligence and the digital infrastructure around it are opening another substantial investment cycle.

None of these looks like a short-lived policy fashion.

From political to private

Governments will continue to set priorities, regulate markets and sometimes share risk. They are much less likely to finance everything themselves. Institutional and private capital should therefore play a larger role, whether through pension money and infrastructure funds or through sovereign wealth and family capital.

The more interesting opportunity is not simply to supply money where the state runs short. It lies in identifying those areas where economic need and public policy are likely to remain aligned for long enough to produce an investable return.

Investors who judge political and policy risk well may find that constrained government balance sheets are widening, rather than narrowing, the range of long-term opportunities available to them.

For International Finance Centres, the relevance is practical. They cannot remove political risk, but they can reduce avoidable uncertainty over how capital is owned, governed, financed and moved across borders. Legal certainty and credible regulation gain more value when the investment environment becomes less predictable.

The coming investment cycle may thus be shaped by an unusual mismatch. Governments have less room to spend at the same time as their economies require very large amounts of new capital. For private investors able to distinguish durable policy from temporary political enthusiasm, the mismatch itself may become an opportunity.

The price of capital will still be discovered in markets, but in the next investment cycle, political durability may prove as important to returns as the economics of the asset itself.