Home GE2017 results in hung parliament – what next for the Pound?

GE2017 results in hung parliament – what next for the Pound?

Posted by on June 9th, 2017.

May 3

Only a couple of weeks ago it looked like the Conservatives were going to cruise to victory in the 2017 general election. Predictions that the party would increase its majority, potentially strengthening the UK’s hand in Brexit negotiations, kicked the Pound to its best levels in months.

But PM Theresa May’s grasp on the situation weakened, and this morning the world has woken to the news that the UK has been left with a hung parliament.

The Conservatives secured just over 48% of the vote, with Labour taking 40%, the SNP securing 5.4%, the Liberal Democrats taking 1.8% and the Democratic Unionist Party achieving 1.5%.

Although the currency movement seen so far has been a lot less dramatic than in the aftermath of the EU referendum, the pound has still dropped across the board.

By the time the European markets were in full swing the Pound had hit the following lows:

GBP/EUR €1.1288

GBP/USD $1.2634

GBP/AUD AU$1.6855

GBP/NZD NZ$1.7531

GBP/CAD C$1.7090

According to Lloyds Bank; ‘While the immediate implications remain unclear at this stage, Theresa May hinted at the prospect of staying on as leader of the Conservative party. Speaking in the aftermath of her constituency victory, she said that in the event that the Conservatives won the most seats and a greater share of the votes, it would be incumbent on them to deliver a period of stability, although she stopped short of mentioning what her role would be. Rumours of a possible speech by the Prime Minister were subsequently quashed by a Conservative party spokesperson, while a BBC report has also suggested that she has no intention of resigning.

At this stage it remains unclear where we go from here, but it is expected that the Conservative’s – as both the incumbent party and that with the largest number of seats – will remain in power, at least in the near term. While it looks unlikely that a formal coalition can be formed, a minority government remains a likely option, possibly in conjunction with an informal alliance with the DUP.’

Currency markets hate uncertainty so the pound is likely to remain under pressure until a working government is formed – especially with Brexit negotiations so close.

Sterling could also spiral lower if the day brings any more surprises, but for the moment at least it appears that the Pound is stabilising.

Although there are concerns that Theresa May will no longer be taken seriously in Brexit negotiations, in the long term this election outcome could prevent the Conservatives from pursuing a hard Brexit, which could turn out to be Pound-positive.

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