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Prospect of hung parliament

Sterling slips as May’s advantage narrows

Theresa May in CardiffSterling has dropped following a poll suggesting the Conservatives may fail to win an outright majority in the General Election.

Theresa May’s party currently has a 17 seats majority but a YouGov survey is pointing to a hung parliament prompting sterling to fall by more than half a percent.

The Conservatives are still poised to be the biggest party but could lose up to 20 of their 330 seats with Labour gaining nearly 30.

While the poll was received with some scepticism it does contribute to others suggesting Mrs May’s earlier advantage has been eroded.

Markets are now beginning to digest the prospect of a hung parliament, creating more difficulty for Theresa May who had been hoping for a clear mandate to begin her negotiations with the EU.

The FTSE 100 rose in early trade, up 15 points to 7,541.49, just shy of the 7,547.63 record closing high set last week.

Sterling rallied in April when Mrs May called the vote as investors believed her large poll lead would translate into a big majority and reduce uncertainty. It hit an eight-month high of $1.3048 last week.

The June election pushes back the date of the next one from 2020 – just after Britain is due to have quit the EU – to 2022, giving the British government more time to have a deal in place before the voters are next asked to vote.

If Mrs May fails to increase the 12-seat majority her predecessor David Cameron won in 2015, her electoral gamble will have failed and it may see her go into talks next month looking weaker.

Citigroup said the immediate reaction is likely be a fall in sterling to $1.20, although it could rise as high as $1.50 if the vote meant Mrs May had to soften her demands on Brexit.

Analysts at JP Morgan offered some support for the hung parliament outcome, saying it could lift sterling.

“A hung parliament would in more normal circumstances be viewed as quite a negative for sterling,” said analyst Paul Meggyesi.

“But in the post-referendum world, all political developments need to be viewed through a Brexit prism and an argument can be made that a hung parliament which delivered or held out the prospect of a softer-Brexit coalition of the left-of-centre parties … might actually be GBP positive.”

 



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