Election May 2015
Future of Sterling: Possible outcomes
Content key
GBP has downward pressure, weak effect
GBP holds
its price
GBP has downward pressure,
strong effect
GBP has
somewhat positive effect
Likely
Labour-centric coalition
Conservative-centric coalition
Implications
Implications
Short-term
Short-term
•Initial market concern over spending plans
•Economic policy initially uncertain
•EU issue may be just parked — uncertainty saved
for later
•Neutral to Sterling, initially positive with
continued austerity
•EU referendum set for 2017 — lingering
uncertainty increases Sterling volatility
•If referendum plans advanced due to coalition,
then probably large short-term drops in Sterling /
rise in price volatility
Long-term
•UK future uncertain if SNP is in the coalition
•Downward pressure on Sterling, which may or may
not recover depending on economic and fiscal
news in the following months
Long-term
•Markets concerned about scheduled EU referendum
Possible
Hung Parliament — No coalition
Possible confidence and supply agreement with conditions
Labour Minority Government
Conservative Minority Government
Implications
Implications
Short-term
Long-term
Depends on what happens next.
•New election?
•Continued minority government?
•Sterling volatility high and pound
weakens in almost all circumstances
•Spending plans uncertain
•EU issue unclear
•Sterling drops on uncertainty
•Sterling volatility increases
•Markets very unsettled for an
unforeseeable length of time
Unlikely
Labour Majority Government
Conservative Majority Government
Implications
Implications
Short-term
Short-term
•Initially positive response
from financial markets
•Initial market concern over
spending plans
•Economic policy uncertain
at first
Long-term
Long-term
•EU issue may be just parked — but for 5 years
•Downward pressure on Sterling, which may or may
not recover depending on economic and fiscal
news in the following months
•EU referendum set for 2017
— lingering uncertainty
increases Sterling volatility
•Markets happier with
continued austerity
Note that GBP rate is also affected by what is happening in other countries/regions (eg Eurozone or US)
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