Blog

The ‘Brexit Election’ and what it means for the pound?

• Posted by currencies in Brexit, Prime Minister
• May 12, 2017
• No Comments

The ‘Brexit Election’ and what it means for the pound?

With just under 4 weeks to go before the general election, polls have stated that the number one priority is ‘Brexit’ and this election will be to decide ultimately whether it’s a soft Brexit or hard Brexit.

Some analysts say Theresa May wants the win to strengthen her negotiation power in trying to strike a new deal, however, EU leaders have stated this will have no impact to the negotiation. They state that this would suggest negotiations will not be as smooth as both parties would like and could result in the UK having no trade deal at the end of the 2 year deadline, considering she has opted for a more hard Brexit.

Jeremy Corbyn on the other hand suggested a softer Brexit would see the transition be a lot smoother and less damaging to the UK economy.

The reality the UK is entering a turbulent time but having a softer brexit simply means a more amicable separation from the EU and potentially having a deal similar to Switzerland, as oppose to running the risk of no deal at all.

What does this mean for the pound?

Either way uncertainty will remain in UK financial markets for some time until we have a clearer view of what post brexit will actually look like, various analysts have suggested the pound will gain on a win for the torries as Theresa May has a clear plan for her Brexit negotiation.

The reality is that we may see a small short term gain as shot term uncertainty about the next PM fades, but let’s not be naive in forgetting this still means a harder Brexit overall and could result in markets reversing it’s short term gains further down the line during the negotiations. After all, these are the same analysts that just a few months ago were adamant that the markets would react negatively with a harder Brexit, and how the economy would suffer for a long period of time.

The pound has already suffered nearly 11% drop against the euro since the referendum last June, and 20% drop against the US Dollar. This has already put pressure on rising inflation and the U.K. Public have already started to feel the squeeze.

Interest rates will stay lower for longer and let’s not forget the risk to manufacturing. If the pound becomes weaker then naturally the squeeze on disposable income will become greater thus posing a threat to retails sales and potentially a risk to our jobs.

If Corbyn is to win, this could mean short term volatility to financial markets due to uncertainty about his plan of action but could mean long term support once a plan is outlined clearly about negotiation with our neighbours over the water. A more amicable and stable negotiation longer term, could see the pound find support and see sterling climb against the major currencies, at least this is what the public were told about a softer Brexit.

Uncertainty will remain in the currency markets for some time but how much volatility we endure is down to the election on June 8th.