How Will This Snap Election Affect The Market?

Mon, 08 May 2017
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As you may know, Theresa May called a snap general election on 8th June.

“The announcement to hold a general election comes as a surprise but if we have learned anything from the Brexit vote it’s that the recruitment and job market is buoyant and robust. The general election brings with it a level of uncertainty, but given the relative disarray of the other parties, a positive outcome for businesses and recruitment would have to be a Conservative win.”

So what does the general election mean for the pound?

Sterling fell after the EU referendum then fell again in October when markets accepted that Britain really is going to leave the EU.

That has a range of causes.

One is that markets may expect the UK economy to grow more slowly after Brexit, and so make the UK a less attractive place to keep money.
Another is that markets think Brexit will make exporting from the UK more expensive and difficult, and so the pound falls to compensate for that.
A third possible factor is that uncertainty means investors simply do not know whether the UK will be a good choice or not, and the pound has fallen to reflect that, cutting the price of UK investments for international buyers.

Markets expect at least three rate rises, but any more beyond that will push the dollar up even further. As one currency’s rise means another’s fall, if the euro and dollar both strengthen further then that will put pressure on sterling to weaken again.