UK elections happen this week. The conflicting polls about the Conservatives lead over the Labour Party have added an element of uncertainty to the almost certain expectations of a landslide win by the Tories (Conservative Party) a month ago. It has given rise to the possibility of a hung Parliament post elections – and this is spooking the markets.
The pound rallied after May’s announcement of snap elections in April as the markets expected that a majority win for the Conservatives would strengthen PM May’s hand during Brexit negotiations. However, since then, the outcry over May’s party manifesto proposal of “dementia tax” and subsequent terror attacks have dented the popularity of the Conservatives party, raised fears of an unclear electoral mandate and added volatility to sterling trade.
Elections will largely be a non-event except for a surprise outcome
A Tory win is largely priced into the markets, and the expected outcome would most likely lead to a relief rally at the most, as markets overcome unstable parliament fears. But the possibility, even if remote, of a Labor Party win/hung parliament could likely shock the markets (locally and globally). However, irrespective of the election outcomes, the long-term outlook for pound remains uncertain. Multiple headwinds that include, uncertainty from Brexit negotiations and potential Scottish referendum could weigh on the Pound, going forward.
The elections would help in peeling off a layer of uncertainty for the markets, but not dispel it. The long, uncertain period of Brexit negotiations still looms over the UK economy and the sterling. The Brexit saga will go on…
Read more about the UK Elections here