This was naturally a surprise to many in the country, and has caused uncertainty over the economy during the run up to election day. This article will look at some of the effects the election announcement has had on the markets.
Value of Pound
Those in the forex trading business may have been excited at the prospect of more political disturbance, which is known to affect the forex market significantly. Despite an initial fall in the pound’s value, the currency rallied to a four month high of $1.28, with predictions that it could reach a value of $1.30.
This will have pleased those forex traders who had speculated that the pound would rise, and perhaps hinted at a small step towards the pound recovering to pre-Brexit highs. It remains to be seen, however, how the currency will react once election results are in, although the Conservative’s strong lead in most polls is likely to bring some stability to the pound.
In stark contrast to the spike in the pound, stock markets suffered greatly in reaction to news of the election. Many of the multinationals in the FTSE 100 earn a large amount of their profits in dollars, which means that a strengthened pound weakened their trade.
The FTSE 100 shrank by 2.5% on the day of the announcement as a result, with mining conglomerates the worst affected by the news. Historically, the FTSE All-Share has prospered under Conservative governments, so May’s popularity in the polls could have some bearing on this.
Property prices have been sharply rising in the UK for many years, and many have described the ensuing unaffordability as a ‘housing crisis’. Labour have pledged to address this by committing to building many more affordable houses.
Should they win and implement this policy, demand and prices should be driven down, and thus more people may look to buying a property rather than renting. Whether this will affect buying/selling rates is uncertain, but many have said that the election result will not affect their decision to buy or sell property.
Market volatility would normally be expected after an election announcement, but since the Conservatives are heavily favoured to win, this could be softened in the weeks leading up to the election. One of the main reasons May called the election was to strengthen the Conservatives’ majority in the House of Commons, and allow her greater room to manoeuvre in Brexit negotiations.
Some believe that she could secure a ‘softer’ Brexit with a large majority, perhaps even securing some form of access to the single market. This could dampen the impact of leaving the EU and reduce market volatility overall.
Ultimately, markets are by nature ever changing entities, and this snap election is unlikely to have a significant effect, since many see a Conservative win as highly likely. Although markets initially reacted strongly, there have been no major upsets, and that is likely to continue until the all-important results day.