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5 Questions that Could Keep the Pound up All Night

Posted by on June 9th, 2017. Connect with us on .

How could the UK election impact the pound

It’s been one hell of a ride. The latest UK general election, which was predicted to see voters tired of politics and the Conservatives easily claim a stronger majority, has been packed full of twists and turns.

The UK now has a hung parliament and the Pound has hit a collective eleven-week low against a basket of its peers. But with so many questions left to be answered what will happen to Sterling next is anyone’s guess.

Here are some of the key issues the markets – not to mention politicians, pundits and voters – desperately want to know the answers to.

1. Will Theresa May Remain Prime Minister?

Conservative sources have told the media that Theresa May has no intention of standing down as party leader. However, criticism is coming from all quarters and the fact that her gamble has backfired is plain for all to see. Polls just weeks ago were predicting a landslide victory for the Prime Minister, which would have improved her authority both at home and in Brussels as the Brexit talks began.

It is difficult to see how she can remain, especially when even the DUP leader Arlene Foster – considered by many to be the Conservative Party’s only hope of securing a majority if she agrees to a coalition – has suggested it would be ‘difficult for [May] to survive’.

Also, considering the face that the Prime Minister called this election after claiming for months she wasn’t going to call an election, her stating that she has no intention of leaving isn’t necessarily a concrete indication of what she intends to do.

2. Could Labour Form a Minority Government?

Jeremy Corbyn could yet become Prime Minister, as Labour Shadow Chancellor John McDonnell has claimed the party is looking to form a minority government.

We’re ready to form a government….we are willing to serve the country,’ McDonnell said in a BBC interview.

I don’t think the Conservative Government is stable, I don’t think the Prime Minister is stable. I don’t want to be derogatory, but I think she is a lame duck now.

Corbyn seems to be enjoying strong support amongst his own party following the result, with many senior Labour figures who had previously been vocally critical of him declaring publicly that they were wrong and throwing their backing behind the leader.

According to McDonnell, the Labour party would not seek to form a coalition or make deals with other parties, instead releasing a Queen’s Speech and asking other parties to back them against the Conservatives.

3. What does this mean for Brexit?

This is the big unknown. Donald Tusk has given the country a nudge on Twitter to remind the UK that negotiations are supposed start in just ten days, posting; ‘We don’t know when Brexit talks start. We know when they must end. Do your best to avoid a “no deal” as result of “no negotiations”’.

It’s likely the start of talks will have to be delayed. There are too many issues to resolve first regarding the governing of the country before anyone can even begin to forecast how the Brexit talks might unfold, including:

  • Will Theresa May still be Prime Minister, able to pursue her vision of Brexit?
  • Will Brussels respect the authority of any Prime Minister from a minority or coalition government?
  • Does the election result actually give anyone a strong enough mandate to make decisions regarding Brexit?
  • Will the UK have a recognised government and leader in time to start the negotiations when they are meant to begin?

Some of these questions may be answered fairly soon – it’s likely we’ll know if Theresa May is definitely intending to stay or not by the end of the day – but others could take several days to be resolved, leaving GBP exchange rates on tenterhooks.

4. Will there be another election?

A thought to make the electorate, political commentators, politicians and (to be fair) this currency analyst shiver, is the prospect that we might need another election to sort this mess out.

Theresa May called the general election because she claimed the narrow majority the Conservatives held in Parliament wasn’t enough to give her a strong mandate on Brexit. The Tories now have an even smaller majority, so by May’s logic have an even weaker mandate.

Not to mention that if May does leave, the next Tory leader will face exactly the same criticisms and issues as she did, in that they won’t have been elected by the general public. But it will be worse for them, because they won’t have a majority. Even if Labour takes power, as leader of a minority government Jeremy Corbyn can hardly claim to have a mandate for Brexit.

So it seems like another election might be the only option the UK has for getting its house in order.

5. Will there be another referendum?

Although highly unlikely, the possibility has likely dawned on many people by now. As outlined above, no one really has the authority to press ahead with Brexit and, if Jeremy Corbyn were to take power, the Brexit he would want to pursue would be different to that sought by Theresa May.

Of course, one of the key issues surrounding Theresa May’s ‘Hard Brexit’ stance in the first place is that the UK only voted for Brexit and wasn’t given a choice over the kind of Brexit it should get.

With a new leader taking a new approach less than a year after the referendum, it’s becoming harder and harder to avoid the fact that maybe it would be beneficial if Westminster at least knew what the public wanted them to aim for and then fought over who’d take those plans through to fruition.

Brace Yourselves – Pound Exchange Rate Volatility has returned

For those yearning for the turbulent days following the EU referendum (no? Us neither) the coming weeks are likely to be right up your street. The answer to each of these questions is likely to spark dozens more, leaving a web of possibilities and roadblocks that could pressure the pound to fresh post-referendum lows. But signs of decisiveness in the House of Commons and a quick appointment of leadership could calm the worst of market fears and allow Sterling to tentatively recover.

The main issue is that nothing about the current situation is anywhere near perfect. Perfect isn’t even on the cards for any more, but to what extent will the UK be able to make the best of what it’s got? That’s exactly what the Pound wants to know right now.

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