Labour win could cause pound to falter

There's less agreement than you'd expect


Stacks of pound coins forming ascending graph

A clear Conservative victory on Thursday could boost the pound, say analysts - but not by strengthening Theresa May's hand in Brexit talks.

Instead, experts believe that, with the next election now put off until 2022, sterling would be strengthened by continuity of power.

See also: What the General Election means for pensioners

See also: Clegg warns over Brexit talks collapse and soaring prices

A hung parliament, on the other hand, could cause a fall in the pound, temporarily at least.

"In the short run, we suspect that a hung parliament would be negative for sterling. When the election was called on 18th April, the polls pointed to a landslide victory for the Conservative Party," writes respected finance blogger 'Tyler Durden' of Zero Hedge.

"This boosted the UK's currency, as investors assumed that such an outcome would lead to a 'smoother' Brexit. In the event of a hung parliament, negotiations would probably be 'bumpier' and political uncertainty would rise... the upshot is that sterling might falter."

Meanwhile, Andreas Steno Larsen, an analyst with Nordea Markets, points out that since the election was announced, the exchange rate has closely mirrored the polls - rising and falling in line with the projected Tory majority.

But, he tells Pound Sterling Live, this isn't because the markets believe that a large Conservative majority will improve the result of Brexit negotiations.

"We tend to think that it makes very little sense to expect any substantial impact on the balance of power in the upcoming Brexit negotiations from May's size of majority in parliament," he says.

"Thus, no matter the strength of the UK mandate at the negotiations, the EU is unlikely to yield easily to UK demands."

If there's no overall majority, there will almost certainly be a run on the pound on Friday as markets wait to see who will form the next government.

Even after that, a hung parliament is traditionally never good for the pound, thanks to all the uncertainty that comes with it.

However, analyst Oliver Harvey at Deutsche Bank thinks this time may be different, as a 'rainbow coalition' could fight for a softer Brexit - and even for a second referendum and the chance to reject a poor deal.

"We see the prospects of a softer Brexit and fiscal stimulus outweighing the impact of policies such as rises to corporation tax rates," he says.

There's more consensus around the effects of a Tory loss on the stock market - best summed up by Kathleen Brooks, a London-based research director at City Index, speaking to Market Watch.

"If the Labour Party unexpectedly wins next week, then we would expect to see a sharp shock in the UK stock market," she says, "as Corbyn's tax-and-spend plans could hurt the UK corporate environment."

The world's most successful investors

The world's most successful investors