June 8th 2017 is General Election day in the UK, and with a tightening in the polls, just what can traders expect following the results? Our guide looks into the various possibilities...
Theresa's Big Idea
Theresa May's decision to call for a snap election following the Easter Break caught many off guard with few expecting it. Particularly as May herself had been adamant that she would not be doing so during a crucial negotiating time in post-Brexit Britain.
Nevertheless, her U-turn was seen by many as an acceptance of the advice those close to her had been suggesting - that she should force home her dominance in the polls to secure a clear majority for the Conservatives and strengthen their hand at the EU negotiating table.
Initial Market Reaction
The fact that a landslide victory by the Tories was widely expected was reflected in the markets. James Trescothick, Senior Global Strategist at easyMarkets, said: "The financial market reacted with the sterling reaching a 6-month high against the USD, while the FTSE 100 crashed, losing 46 billion pounds."
"The boost in the GBP was down to the markets anticipation that the outcome of the election on the 8th of June would see a landslide victory for May’s Conservative party putting her in potentially a stronger position with the EU, once Brexit negotiations officially start. The FTSE100 collapse was caused by this sudden rise in the sterling as it hit the value of overseas earnings."
And yet, Theresa May's limp campaigning combined with popular policies from Labour's Jeremy Corbyn have seen the polls tighten. Some are even suggesting that Labour are close to neck and neck with their rivals. But while a shock victory for Corbyn is still unlikely (the odds of him winning have gone from 14/1 to 4/1), the Tories' hopes of a thumping majority are beginning to dwindle. There is a whiff of hung parliament in the air. And as we all know, the markets hate uncertainty...
Turnout Will Be Key
As we've seen many times recently, the polls (and social media) don't often paint the right picture. Most polls were wide of the mark in the 2015 election, and again last summer for the EU referendum. Much will depend on voter turnout, with Labour expected to do better the more those who say they're going to vote actually leave the house and do so.
Traditionally, lower turnout favours the Tories, which is why you've note seen Theresa May pushing the theme of voter registration quite as strongly as Corbyn and co, with an estimated 7.5 million people missing from the electoral register. When it comes to polling, it's always worth remembering the UK-phenomenon of "shy Tories", the high percentage of voters who aren't comfortable telling pollsters that they intend to vote for the Conservatives, but will do so on the day.
How The Markets Will React
An unlikely Corbyn victory will shock the market and likely see the sterling come under pressure. Even a slim Tory majority could see a strong sell-off of the pound, with confidence in May still not achieved, and the prospect of a leadership challenge (hello Boris) on the horizon. As Trescothick adds, the only outcome for a positive impact on the sterling is a big Tory win of 50 seats or more:
"The market could see that Theresa May will be in a commanding position to negotiate better terms for UK’s exit from the EU. The British pound against the US Dollar could possibly challenge the key level at $1.30."
Fear The Hung Parliament
Conversely, the sterling would likely crash if the UK wakes up on 9th June with a hung parliament. "Because with this result securing any deal with the EU will prove to be very difficult as any set direction for negotiations will be lost amongst all the bickering that will very likely occur between all the parties in the commons. The GBP/USD rate could once again fall as low as $1.20," says Trescothick.
Polling stations will be open across the country from 7am to 10pm, with an exit poll at 10pm giving a strong indication of the result. If you're registered to vote, find your nearest polling station at wheredoivote.co.uk.