Election 2015: What Will Happen To Our Pound
With one day left until the UK election, we reflect on the effect of the most uncertain election in recent history on your foreign exchange, and how it may continue to affect you. The polls are close, and at this stage nobody quite knows who’s going to be celebrating at No 10 Downing Street – will Cameron stay in power, will Miliband snipe in, or will a coalition government have to be formed? There is so much speculation about the outcome of this election, and yet no certainty. This uncertainty in the future of Great Britain is reflecting on our currency markets; GBP/EUR has dropped from 1.39 to 1.35 in the past week. But the volatility of the market in its present state is making any future moves completely unpredictable. “The currency markets appear to be overlooking economic data at the moment and really focusing on the UK’s political situation. Therefore… I expect to see a lot of volatility for Sterling vs Euro exchange rates.” (Tom Holian, eurorateforecast.com) In fact, it’s quite clear that the markets are ignoring the more factual economic data. If you look at the economic situation that Great Britain is currently in, it’s miles away from where we were at the time of the last election. In fact, even just looking at the Sterling Euro rates, we can see a large climb from where we were during our recession. Not only have our markets strengthened, but our growing economy and government policies have led to wages rising and more available jobs, all of which have improved the economy in Britain and have brought us into an era of what could be financial stability. However, it is fears of a hung parliament that are currently really threatening this stability, and are leading to an uncertainty in GBP. Investors look to the history of hung parliaments in this country, specifically the most recent where the pound fell quickly across the board soon after, and are concerned for the future of our economy. So, what happens after the election? There are three real possible outcomes of this election, and although we have some guesses as to how these may affect the market, even these are just speculations. If Labour were to win, there are concerns that their budget and policies focus far too much of spending, and that they may spend more than the country can afford. However, there’s no way to be certain that their budget would knock our market position – if Labour do win, and they manage to really pull the cat out of the bag, we could be in a far better situation. It’s unpredictable, as there have been so specifications as to where this extra spending would come from in their budget. Meanwhile, Conservatives have always had a lot of support from investors, and when the Tories are expected to win, the markets usually reflect this very positively. This time they have managed to somewhat continue this, and the public have faith in them to be a little bit more thrifty than the Labour party. The Tories have also made promises of much-needed cuts, which might help our economy and boost our standing in the market. However, there are some concerns as to what the absence of an EU referendum would do for our position in the market, and some investors doubt the security that Conservatives promise. However, it is a coalition government that could either really endanger our situation or significantly improve it. Some investors largely support the idea of a coalition, particularly that of a Labour and SNP coalition, as the two parties combined would reduce the likelihood of any uncertainty or instability in the market. Some investors believe that a minority government would be most beneficial for our market position, as it would stir up less uncertainty or fear from the market. “I suspect the best we can hope for is a minority-led government where significant changes to policy… are put on the backburner and we achieve a continuation of the status quo.” (James Calder, head of research at City Asset Management) Meanwhile, many live in fear of a coalition, specifically one with UKIP, which may threaten our EU membership and destroy our relationship against the Euro in the market. How will this election, then, affect your foreign exchange? The polls are so close, and some of the most significant policies are still being kept as mysteries – it’s just too close to judge. So whether you’re a stability-supporting Conservative, a less-thrifty fan of Labour, or routing for a game-changing coalition, the feeling is this election will surprise us all.