Did the UK PM just lose the election?

Why the UK election could hit the economy

David Cameron, the U.K. Prime Minister, hasn't had the smoothest ride in office – and he may have hit another speed bump weeks before he tries to secure a second five-year term.

In an interview with the BBC Monday, Cameron pledged to not seek a third term in office, in a move that has already attracted a storm of criticism.

Britain's Prime Minister David Cameron leaves 10 Downing Street in central London, March 18, 2015.
Stefan Wermuth | Reuters

The latest news highlights how investors may be misjudging the risks surrounding the UK election, after less stable countries have dominated the headlines.

With just over six weeks to go until the U.K. public votes in one of the closest elections to call, and polls suggesting Labour have a very slight lead over the Conservative Party, we take a look at how the race is shaping up.

Cameron’s deadline

The PM's announcement struck the wrong note on a number of fronts. It made it easy for Labour politician Douglas Alexander to attack him as "typically arrogant". The U.K. population has historical form for disliking leaders who look like they are assuming the results of an election. The best-known example is probably the 'Sheffield rally' – when Neil Kinnock, then leader of the Labour Party (and now better-known as the father-in-law of the Danish Prime Minister Helle Thorning-Schmidt) appeared to enthusiastically celebrate an expected Labour victory, only to lose the election a week later.

Another is Cameron's predecessor Tony Blair, who famously did not make it to the end of his third term after promising not to serve a fourth term – turning himself into a lame duck.

Ex-UK PM Blair is driven by his ego: Author

The prospect of an exit by Cameron also makes the speculation about who will be next more interesting. He named Theresa May, the Home Secretary; George Osborne, the Chancellor of the Exchequer; and popular Mayor of London Boris Johnson as potential successors. While these are the three most obvious candidates, by naming them he has effectively kick-started the campaign to be his successor, at least four years before he (presumably) wants it to start.

Demographic clash

Where the Tories may really trip up is not dissimilar to the error made by the Republican Party in the U.S. By attempting to placate their traditional voters via trying to appear tough on immigration, they appear to have alienated a growing section of the U.K. population. In the last election, 68 per cent of black, Asian and minority ethnic voters voted Labour while just 16 per cent ticked the box next to the Conservative Party candidate.

This may have cost the Tories votes in several crucial seats – and with the election likely to be won in a few marginal constituencies, possibly the balance of power.

Labour tax pledge

One possible reason for Cameron's announcement that he won't seek a third term – when, frankly, nobody asked – may have been to overshadow a key Labour election promise announced on Tuesday.

The party's shadow Chancellor, Ed Balls, has pledged that he will not raise Value Added Tax – which is added to goods and services – if elected. This plays into the party's claim to be helping "pensioners and working families".

Labour leadership quandary

Labour's leader, Ed Miliband, is facing his own leadership dilemma, with one well-known Labour MP, Simon Danczuk, arguing he seems "aloof" and that ordinary people think he is a "kn*b" – even though he should in theory appear more ordinary than Old Etonian Cameron.

With personality likely to be an important factor in upcoming televised live interviews and debates, his team are working hard to make him appear more likable, with decidedly mixed results.

- By CNBC's Catherine Boyle