How will the Pound Weather the Elections?

The UK or more specifically the pound have not been in the best state since the beginning of the year. Investors and traders have been more than shaken by the instability created by Brexit, slowing of the U.K. economy and even the mounting fears that many European company’s might leave the British Isles due to increased taxation and difficulty/cost employing or holding on to non-British citizens.

Adding to the market’s already jittery approach to the pound are the upcoming elections – in fact the pound’s already slipping price took a further dip down on Friday at market closing. As the margin between the party’s narrow. Some even speculate that if the Labor Party gains majority that it might result in a reversal of the Brexit process.

On the other side of the election’s gamut - talks between UK PM Theresa May and EU President Mario Draghi have been contentious at best and very thinly veiled threats and attempts at intimidation at worse.

To compound this entire discouraging trend, recently KPMG and the British Retail Consortium reported that retail sales slowed down in May, the fourth time this has happened in the relatively short period between now and the beginning of ’17. This is largely due to the general insecurity surrounding the Brexit process, inflation continuing to outpace salaries and wage growth stagnation.

As essentially a few more hours remain until the Labor and Conservative Party go toe-to-toe polls are showing an ever-narrowing margin – down to 6 points in recent polls. This general uncertainty regarding the outcome of the elections could result in a nervous market – objectively though, even though the Labor Party was against the Brexit, now says the referendum result must be followed through with and honored.

This ultimately means that no matter which one of the two poll leading Parties wins the most seats and even if the Prime Minister changes – the pound will still remain unstable. This instability will inevitably continue until negotiation with the EU start becoming more concrete when actually numbers and policies are put down on paper.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice

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