UK GE2017: How could the Result Impact the Pound?
Posted by Oliver Meredew on May 31st, 2017.
With only a week to go before the 2017 UK general election, it’s worth taking a step back from all the ‘strong and stable this’ and ‘many not the few that’ talk to look at the facts.
June 8th will see voters go to the polls in the second major national vote in less than a year, with a victor crowned on June 9th. In this article, we’ll be taking a look at the main promises of the main parties, who the key figures are and what could happen to the Pound after the dust has settled.
A Landslide Victory or a Turn of the Tables? – The Conservatives
In the ‘blue corner’ are the defending champions, the Conservative Party. The Conservatives, or Tories, have been in power since 2010, when David Cameron led alongside Liberal Democrat leader Nick Clegg.
Following another election and the EU Referendum, Clegg and Cameron have since departed, leaving Theresa May in charge.
May was not nationally elected as Prime Minister, instead being chosen only by the Conservative Party when Cameron resigned after the Brexit vote. If victorious in June’s election, May’s leadership will be legitimised, potentially boosting her Brexit negotiating hand. An increased majority would also help May succeed in pushing through the kind of Brexit she envisages – a path which is likely to be challenged at the moment from members of her own party.
Among May’s campaign team has been Foreign Secretary Boris Johnson, who has recently dredged up a clanger from his Brexit days. Johnson suggested that the Conservatives would give the NHS £350m a week if Brexit was successful, a figure identical to the amount the UK would supposedly get from leaving the EU. Johnson’s presence on the campaign trail is a gamble, as his popular appeal comes at a cost of frequent ‘gaffes’.
Running through the lengthy Conservative manifesto document, it puts Theresa May front and centre while focusing on potential hardships – the opening line is;
‘The next five years are the most challenging that Britain has faced in my lifetime’.
Key pledges are to restructure social care, to balance the budget by 2025 and to lower net immigration to the ‘tens of thousands’.
Social care has been a polarising issue, with opponents labelling the planned reforms as a ‘dementia tax’. Changes would factor in home values when calculating the cost of social care, which has been negatively received since many UK home prices are above the threshold £100,000. The Conservatives fell in polls when the plan was announced, but a recent U-turn on social care plans could restore their prior lead.
Other interesting policies include a push for grammar schools, plans to cut corporation tax to 17% by 2020 and one to hold a free vote on reintroducing fox hunting. The proposed tax cut is another gamble – it could bring more businesses to the UK, but less tax would be claimed on each company.
On the big issue of Brexit, the Conservatives are sticking with their line that ‘no deal is better than a bad deal’. This strongly implies an economically turbulent ‘Hard Brexit’, which could appeal to fervent Brexiters but threatens to alienate more moderate ‘Leave’ voters.
The Verdict: Despite recent polling wobbles, the Conservatives could still take a decisive victory. This result could boost Pound demand significantly, as May has stated that more Tory votes will strengthen her negotiating power in Brexit talks.
A Conservative win would also continue the status quo, further reassuring Pound traders. While the Conservative manifesto implies a lean towards ‘Hard Brexit’, this is not expected to put traders off – initially at least.
Essentially, the larger the majority the more likely a Pound rally is, while a close result or even a forecast-defying loss could see the Pound tumble.
Make or Break for the Opposition? – Labour
Initially considered a ‘no hoper’ in the election, the Labour party has since been upgraded to ‘underdog’ status. Labour has struggled since the 2015 election with internal divisions and differences of opinion, but remain the greatest obstacle to a Conservative win.
Labour leader Jeremy Corbyn has been a divisive figure in the party, having fought off a leadership challenge in 2016. The challenge was called because of his supposedly patchy support for the In-campaign during the EU Referendum; since then, Labour has distanced itself from Conservative views on Brexit.
Corbyn has been alternately helped and hindered while campaigning by Shadow Home Secretary Dianne Abbott, who gained infamy during a radio interview with LBC.
Questioned on the cost of recruiting 10,000 police officers, Abbott gave contrasting and unrealistic figures, although the interview did bring the issue of the understaffed police force to the fore.
Labour’s manifesto, which was partly leaked before the big reveal, aims to bring in funding by taxing ‘wealthier’ citizens, specifically those earning over £80,000 a year. Renationalisation is also a big promise, with plans to return inefficient railways to government hands expected to go down well among commuters.
For the NHS, Labour aim to commit £30bn during their term, much higher than the Conservative (£8bn) and Lib Dem (£6bn) pledges. Labour has chanced on securing the youth vote by pledging to scrap tuition fees; a similar and unmet promise proved disastrous for the Lib Dems during the coalition.
On corporation tax, Labour are planning to raise it from 19% to 26%. As with the Conservative plan, this has its benefits and risks. More tax would come in, but companies could be put off investing in the UK as a result.
On Brexit, Labour are more committed to the future UK-EU relationship than the Conservatives. Labour’s manifesto aims to have the UK leave the EU on good terms, ideally keeping single market access in the process. Labour hopes to sweeten the deal by guaranteeing the rights of EU citizens in the UK, while negotiating the same rights for UK expats in the EU.
The Verdict: Based on polling figures, Labour could make a defiant stand against the Conservatives but may still come in a solid second place.
If Labour loses the bulk of its current seats then the Pound may strengthen, mainly because of greater optimism about a Conservative majority in the face of Brexit.
That said, polls are by no means infallible, as the 2016 EU Referendum and US presidential election showed. If Labour beats the Conservatives outright or forms a majority coalition then the Pound could tumble due to uncertainty about Labour’s radical proposals.
Can the Bird of Liberty Fly Again? – The Liberal Democrats
If Labour’s chances of victory look slim, those of the Liberal Democrats seem even slimmer. The Lib Dems experienced heavy losses in the 2015 general election, only holding onto 8 seats after a nationwide drubbing.
The spectacular collapse was partly attributed to the Lib Dems’ failure to prevent tuition fees rising, although other factors were also in play.
Lib Dem leader Tim Farron has taken unusual steps while campaigning in the election, stating that;
‘There will be a Conservative landslide. There is no point in pretending otherwise’.
Farron is instead trying to get the Lib Dems installed as the opposition, in an effort to replace Labour as the ‘true left’.
Nick Clegg, former Lib Dem leader and Deputy Prime Minister, is campaigning for a seat in the election, but that could dredge up unpleasant memories for young voters.
As mentioned in the Labour section, Clegg is somewhat notorious for not blocking a tuition fee hike, which could come back to bite him and his party. Responding to Labour’s plan to scrap tuition fees, Clegg declared that it was the ‘wrong choice now’, something that has returned his prior policy misstep to the public conscious.
The Lib Dem manifesto aims to make money by spending it, having committed to putting £100bn into infrastructure investment. On education, the Lib Dems are moderate, staying away from the tuition fees minefield but committing to around £7bn for schools and pupil premiums.
Compassion is the watchword of Lib Dem immigration policy, with plans including one to take 50,000 Syrian refugees into the UK, along with 3000 unaccompanied minors from Europe. While certainly commendable on the humanitarian front, this could prove unpopular among hard-line Brexiters and more nationalistic voters. In the wake of the Manchester terror attack, this type of policy may also be hard to sell to wavering voters.
The Lib Dems differ radically from other parties on the issue of Brexit, promising to hold a second referendum at the end of negotiations with the EU. If Brexit is rejected, the implication is that the UK would stay in the EU despite the earlier pro-Brexit vote. In negotiations, Lib Dem plans are similar to Labour’s, pushing for EU-UK citizens’ rights and a free trade deal.
The Verdict: Polls put the Lib Dems in third place, ahead of the SNP. It seems a tall order to replace Labour as the official opposition and Farron’s seemingly defeatist outlook may not endear the party to undecided voters.
Additionally, the pledge to hold a second EU referendum could polarise voters, as it may only hold sway with die-hard ‘Remain’ voters or ‘Leavers’ who have since shifted opinions.
Farron has asserted that he will not enter a coalition with Labour or the Conservatives, insisting that the Lib Dems should be the ‘strong opposition’. This also lowers the Lib Dem’s chances of getting in, as it shows an unwillingness to compromise.
Should the Lib Dems take direct power or form a coalition, the Pound could tumble due to the second referendum pledge. It is generally accepted that it would be politically self-destructive to go against the Brexit vote, however, so the Lib Dems may not be given the chance to enact their bold scheme.
Colouring Scotland Yellow – The Scottish National Party (SNP)
The SNP made astonishing gains in the 2015 general election, removing the Lib Dems from mainland Scotland and reducing Labour and the Conservatives to single seats. Two years later, however, the tide may be turning once again in Scottish politics.
A key factor of Scottish First Minister Nicola Sturgeon’s campaign has been a push for Scottish independence, which may undo the current SNP stronghold in the north.
Over 55% of Scots said no to independence in 2014, but that was before the Brexit vote. Since the EU Referendum, Sturgeon has pushed for a second independence referendum, dubbed ‘Indyref2’.
Despite this push, Theresa May has stated that no vote would be held until after the UK leaves the EU, while some polls indicate that support for independence could be waning.
Sturgeon has been supported in her efforts by SNP Deputy Leader Angus Robertson, the fiery SNP voice in Parliament. On Indyref2, Robertson has been defiant about the election outcome;
‘I just think it is unimaginable, if there is a UK Tory party victory across the rest of the UK but in Scotland the SNP has returned, that they can just continuously turn their backs on the democratically expressed views of the people of [Scotland]’.
The SNP manifesto details plans to make Scotland a fairer place to live, whether as part of a UK or independent government.
The elephant in the room, a second independence referendum, is directly addressed. The manifesto declares that if the SNP secure a Scottish majority in the 2017 election, it will stack on previous actions and victories to make a ‘triple lock’ case for another independence vote.
This is emphasised by the SNP advice that;
‘A vote for the SNP is a vote to reinforce the Scottish Parliament’s right to decide when an independence referendum should happen’.
The manifesto makes the case against Scotland being dragged out of the EU with the UK and states that an independent Scotland should remain or become part of the EU.
Among other notable pledges, the SNP aims to end austerity, increase incentives that will boost employment and ban ‘exploitative zero hours contracts’.
The SNP’s objectives may be confined to the Scottish electoral map, but they could face stiff competition from the three main UK parties.
The SNP’s biggest ideological threat is from the Conservatives, as Theresa May has repeatedly stated that ‘now is not the time’ for a second independence referendum.
If the Conservatives make gains in Scotland once again, Sturgeon’s argument for pushing ‘Indyref2’ may be damaged, as new Conservative seats could indicate a desire to stick with the Westminister line on no second vote.
In addition, Labour and the Lib Dems may also strive to claw back former territories to bump up their overall seat count.
The Verdict: The SNP aren’t out to disrupt Brexit or take over the UK, but claiming a Scottish majority is key to future independence aspirations. If the appetite for independence is as high as SNP officials think, the party could build on its already-impressive 2015 gains. This could push Labour, the Conservatives and the Lib Dems out of the north entirely.
This would firm opposition to Brexit among Scots and could complicate Brexit talks, assuming that the Conservatives take a majority down south.
A politically or legally independent Scotland is a key part of the SNP manifesto, so much of the SNP’s chances will hinge on public demand for such measures.
Ending austerity may go down well among budget-depleted sectors, while plans to boost employment are a similarly safe pledge.
Nicola Sturgeon’s party is expected to stick around in some shape or form when the votes are counted on June 9th, but Pound traders may end up more focused on whether the other parties make any inroads into the SNP stronghold.
If the SNP loses seats after the vote, the Pound could appreciate, especially if those seats turn blue.
What had initially looked like a dull election has since erupted into a close-fought contest, not to mention that the polls could be wrong. Be sure to keep a close eye on the TorFX blog for any election updates and TorFX currency news for any major Pound movements before the big vote on 8th June.
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