Investment Clock insights

Conservative or Labour majority both bad news for sterling


Trevor Greetham 

30 October 2019

As parties gear up for a 12 December election, we see both a Conservative majority or a surprise Labour majority as sterling negative. You would normally think a hung parliament would be the worst outcome for markets but these aren’t normal times. 
 A Conservative victory would raise the spectre of a new ‘no deal’ cliff edge in December 2020 if the UK were unable to agree a free trade agreement in time. A Labour victory would create a different kind of uncertainty given a policy offering including elements such as nationalisation and the confiscation of assets, so-called ‘People’s QE’ and a return to the fiscal demand management of the 1970s. We would expect stocks to take a Labour victory more negatively, especially the privatised utilities.
A hung parliament with the Liberal Democrats as king makers would temper some of these extremes and it would mean a confirmatory referendum in 2020, with remaining in the EU as an option.
Sterling volatility has dropped, now that the risk of a no deal Brexit over Halloween has receded, but with this level of uncertainty it’s likely to remain high.

As parties gear up for a 12 December election, we see both a Conservative majority or a surprise Labour majority as sterling negative. You would normally think a hung parliament would be the worst outcome for markets but these aren’t normal times.  

A Conservative victory would raise the spectre of a new ‘no deal’ cliff edge in December 2020 if the UK were unable to agree a free trade agreement in time. A Labour victory would create a different kind of uncertainty given a policy offering including elements such as nationalisation and the confiscation of assets, so-called ‘People’s QE’ and a return to the fiscal demand management of the 1970s. We would expect stocks to take a Labour victory more negatively, especially the privatised utilities.

A hung parliament with the Liberal Democrats as king makers would temper some of these extremes and it would mean a confirmatory referendum in 2020, with remaining in the EU as an option.

Sterling volatility has dropped, now that the risk of a no deal Brexit over Halloween has receded, but with this level of uncertainty it’s likely to remain high.

Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.