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The Actuary The magazine of the Institute & Faculty of Actuaries

Pound surges as PM confirms UK snap general election in June

After falling to a value of $1.2515 this morning, the pound bounced back to a four-month high of $1.2729 after PM Theresa May confirmed her intention for a snap general election in June this year.

May can increase the Conservatives’ majority ©Shutterstock
May can increase the Conservatives' majority ©Shutterstock

She said that the decision had been made to address divisions in Westminster, and suggested that increasing the government’s majority would strengthen its hand when dealing with opposing parties and implementing Brexit.

With the latest YouGov voting intention figures putting the Conservatives 21 percentage points above their closest competitors, a likely victory for May would also allow her to set out a clear mandate, removing any obligations to adhere to previous Conservative manifesto commitments. 

Schroders chief economist, Keith Wade, said: “If Theresa May can increase the Conservatives’ majority, that would give her more power and room for manoeuvre when it comes to negotiating the UK’s terms of exit from the EU.

“It would also give May a little bit more breathing space and less need to strike a final deal with the EU.

“After the budget there was a small rebellion of Conservative MPs, which was enough to cause the government to do a U-turn on its tax proposals for the self-employed, and I think May has realised this could happen several times during the negotiations.

“A successful election would give May the mandate to pursue her own Brexit strategy. My sense is that a stronger mandate, and more time, would allow a more patient approach and a softer Brexit, probably more in line with May's instincts."

How the value of the pound changed as the PM made her announcement today is shown below (£/$):

value of the pound changed as the PM made her announcement
Source: Reuters

The FTSE100 is trading 1.7% lower on the day following the rise in value of Sterling, according to analysis by Hargreaves Lansdown (HL), who also expect this to have an adverse effect on these companies’ share prices.

However, the index is not considered a ‘pure benchmark’ of the perceived health of the UK economy, with investors being urged not to let polls and market volatility dictate their investment decisions.

“The big risk investors face from an election is that they let it disrupt their financial plans,” HL senior analyst, Laith Khalaf, said.

“In the short-term, market sentiment can be driven by political events, but investors should look beyond any noise as politicians hit the campaign trail, and keep focused on their own long term savings goals."

The PM will still need approval from two-thirds of MPs in the House of Commons if she is to hold the general election on her planned date of 8 June 2017. 

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