The snap election and its effect upon the Pound

Sterling is dominating the economic picture for this year. However, the weak pound means economists fear households will suffer from rising inflation, damaging their growth forecasts. Political concerns is currently driving the value of the pound. The Brexit vote last year, Theresa May’s conference speech in October and the announcement of the snap general election have all had serious effects.


Politics abroad is also influential in the currency markets, from the French election to the rise of Donald Trump.

Was the Snap election necessary?

The prime minister wants a strong mandate in parliament for what was likely to be fraught negotiations with Europe over Britain’s exit from the EU. Her Conservative party has a relatively slim majority in the House of Commons, won in 2015 under the previous leader David Cameron. Also political madness with the Labour party, which had collapsed in the polls, leaving Mrs May in a much stronger position and made an election win significantly more likely.

A victory in June would also hand her a very important personal mandate. Having taken over from Mr Cameron when he resigned mid-term, after losing the Brexit referendum, she has yet to win her own general election.

Is the pound weak or strong right now?

Theresa May’s announcement of a snap general election pushed the pound up by around 1pc last week against the dollar and the euro, breaking sterling out of the low band in which it had been trading since October 2016. But despite that rise in the last couple of weeks before the snap election, it is relatively weak. The Sterling is trading at $1.28 and at €1.18, down roughly 12pc against the dollar and 10pc against the euro compared with its position 12 months ago.

The constant political change is likely to spark lots of uncertainty and pull the country’s currency lower as a consequence. However, according to analyst the snap election could actually provide more clarity on the Brexit plan out of Westminster and make sterling more attractive. Sterling fell after the EU referendum then fell again in October when markets accepted that Britain really is going to leave the EU. Many expected the UK economy to grow more slowly after Brexit, and so making the UK a less attractive place to keep money. Growth since the referendum has been far more robust than anticipated. Another reason is the markets think Brexit will make exporting from the UK more expensive and difficult, and so the pound falls to compensate for that.

The final factor is uncertainty means investors simply are not convinced whether the UK will be a good choice or not and so need to be enticed to hold sterling assets and the pound has fallen to reflect that, cutting the price of UK investments for international buyers. The moves since then reflect those expectations.

Are other factors affecting the pound?

The general election recently has been based upon a variety of factors. More recently the seven weeks of the general election campaign were disrupted by three deadly terror attacks, in London and Manchester. The rise in concern with public safety cause people to learn more about the political policies put in place. The uproar of concern caused people to shift in faith of their political views.  Mr Corbyn has been able to make gains by suggesting that the prime minister is trying to “protect the public on the cheap” and accusing her of over-reacting after she said she would rip up human rights laws to impose more curbs on terror suspects if necessary. Mrs May’s personal standing has undoubtedly been weakened either way. Though whether this is due to her U-turn on social care, role in making police cuts, or faltering campaign performances is uncertain.

During the first attack, the pound had fallen dramatically, but had started to recover before panicked traders sold Britain’s currency amid the first reports of the London terror attack, which sent Westminster and Parliament into lockdown and has left at least two people dead. At the same time, higher than expected UK inflation boosted the pound, as markets wonder if the Bank of England could be tipped into raising interest rates soon than currently predicted.

What does the future look like for the pound?

The pound is currently is increasing, although the snap election results has had major effect. The value will continue to fluctuate, during the brexit negotiation, as people are still uncertain of the terms and conditions agreed by the current government. Also the government have to take into account the external effects of the Brexit negotiations. this could cause major implication for out exports and imports. The future looks uncertain and uncertainly causes depreciation upon the pound.

Summary
Article Name
The snap election and its effect upon the Pound
Description
Sterling is dominating the economic picture for this year. However, the weak pound means economists fear households will suffer from rising inflation, damaging their growth forecasts. Political concerns is currently driving the value of the pound. The Brexit vote last year, Theresa May's conference speech in October and the announcement of the snap general election have all had serious effects.
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Trade Finance Global