After 5 weeks of campaigning the UK polls have barely shifted, the latest YouGov/ The Sun/ The Times poll from 6th May found that the Conservatives and Labour are neck and neck with 34% of the vote, Liberal Democrats have 10%, UKIP 12%, and the Green Party 4%. Unless we get a major shift at the polling booth then a hung parliament is near certainty and no party is expected to reach the magical 326 number of seats needed to form a majority government.
While it could take days, weeks and even another election to form the next British government, the markets are unlikely to hang around to see who makes it to Number 10 Downing Street. Instead, we expect UK assets to experience a knee jerk reaction on the back of the initial outcome. Check out our UK election special HERE for our detailed forecasts, but in a nut shell:
Hung parliament: could be bad news for pound, FTSE and boost Gilt yields.
Conservative or Labour outright win: initial boost for UK markets, as the shock that one party is in power could outweigh some concerns with both parties’ future policies and their impact on the UK economy. As we have mentioned in our UK election preview, both Labour and the Conservatives pose problems for UK asset prices in the long term, as both parties’ policies could have a negative impact on the economy.
However, for now we believe that financial markets are more interested in the short-term implications of the UK election outcome. Due to this, we have put together a quick guide on the UK election results:
- Polls close at 2200 BST/ 1700 ET
- Exit polls will be released shortly afterwards, which should give us an initial idea of the results.
- The first constituency results could be known with an hour of the polls closing.
- However, we expect the majority of constituencies to have reported results between 0300-0500 BST on Friday/ 2200- 0000 ET.
- Of course, there could be recounts, which could delay the overall result being called.
- Due to the importance of the Scottish National Party (SNP), we will also be watching the outcome of the Scottish elections.
- At the last election in 2010 it took 5 days for the Conservatives and Lib Dems to form a coalition.
- In the event of a hung parliament, we would expect the horse trading between the parties to begin early on Friday.
- Due to the fractious nature of this election, and the relatively large number of smaller parties, it could take a lot longer to form a government in 2015 compared to 2010.
As mentioned above our expectations for markets include:
- The market may have an initial knee-jerk reaction on the back of the results early Friday morning UK time.
- We would expect UK markets to remain volatile in the UK morning session, although the afternoon session could be determined by the outcome of the US’s NFP report for April.
- If we have a prolonged period of deadlock as the various parties try to form a coalition, we think that the markets will largely ignore the UK’s political deadlock through the summer months.
- Things could get volatile again: 1, when/ if we get an announcement of a new government and the implications this means for the economy going forward, or 2, if no government is formed, and a new election is called.
Overall, tonight’s election result is worth watching, particularly if you are a UK citizen or a cable trader. Expect an initial bout of volatility on the back of the results, until the US NFP report returns to dominating markets in the afternoon session.
Also, while the short-term outlook for UK assets is volatile, don’t expect the markets to pay too much attention in the medium-term during the “coalition-forming” phase. As we have mentioned in our UK election preview, political deadlock is not a bad thing for financial markets, and we could see the pound and the FTSE move on global economic themes, rather than domestic political factors, in the medium-term.