When Theresa May called a snap General Election on 18th April, a huge Conservative victory seemed almost a certainty. At the time, numerous polls gave the Conservative party a 20-point lead over Labour, which would translate into a substantial increase in their working majority in the House of Commons.
However, with just a couple of days now until the UK General Election takes place, the Tory lead in the polls has narrowed significantly. A number of polls carried out by YouGov, providing a constituency-by- constituency estimate of the election result, have started to suggest that a hung parliament is a possibility. Their most recent poll predicts that Theresa May is set to win 305 seats, 21 short of the 326 she would need to achieve a majority.
UK pollsters are all still predicting that Conservatives will win the most seats. However, it no longer seems as certain that Theresa May will achieve a majority as it did just a few weeks ago, which could result in a hung parliament. We’ve taken a look at what this could mean for the currency markets.
What is a hung parliament?
A hung parliament describes a situation where no party has won more seats in the election than the number of seats won by all their opponents combined. If this is the outcome of the current election, the incumbent Prime Minister, Theresa May, could attempt to form a minority government. However, if the government is unable to command the confidence of parliament and there is a possible alternative – such as a Labour/SNP/Liberal Democrat coalition – this could allow Jeremy Corbyn to become Prime Minister and form a new government.
Who would work with whom in a hung parliament?
In a hung parliament, the Conservatives would be given the first opportunity to form a government. However, it is unclear if any other parties would be willing or able to support them in this.
The Labour leader might then find he is in a position to enter negotiations with other political parties. Jeremy Corbyn has refused to speculate on this possibility so far, stating, “We are not doing deals, we are not doing coalitions, we are not doing any of these things. We are fighting to win this election.” The SNP, however, has suggested they would seek to work with Labour to “pursue progressive policies” in the event of a hung parliament.
What the markets think about a hung parliament
The possibility the recent YouGov polls have raised of a hung parliament has already put pressure on Sterling. On Monday, we saw Sterling fall to 1.1385 against the Euro, its lowest since March and down from above 1.1900 in less than a month. Such an outcome in the 2010 election caused Sterling to drop 5 cents against both the Euro and the Dollar, and that was without the added uncertainty of Brexit.
What could this mean for the Pound?
As the election was initially called to strengthen Theresa May’s hand in the forthcoming Brexit negotiations, some investors are beginning to fear that a hung parliament could leave the country in a weaker negotiating position, which could put downward pressure on the Pound. However, JP Morgan has suggested an alternative perspective. They feel that a coalition of the left of centre parties could result in a softer Brexit and therefore this could be positive for Sterling.
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