The potential outcome of the UK General election and its impact on the British economy

The potential outcome of the UK General election and its impact on the British economy

Britain is all set to go for the general election tomorrow, i.e. on December 12, 2019. However, the latest opinion poll survey revealed by pollsters indicated high chances for a Hung Parliament. PM Johnson-led conservative party’s lead has slumped and the gap between Boris Johnson and opposition leader Jeremey Corbyn has been narrowed.

According to a survey conducted by pollster YouGov, the Conservatives are set to bag approximately 339 seats, Labour Party is heading towards 231 seats, the Scottish National Party is expected to win around 41 seats while the Liberal Democrats are forecasted to secure 15 seats. However, Conservatives securing 339 seats out of total 650 seats would be enough to form a majority in the House of Commons but would be significantly down from their earlier estimated number of seats.

This reflects that opposition leader Jeremy Corbyn has succeeded in converting some of the Conservative party’s seats, primarily after several pro-European voters aligned with the Labour party.

If the opposition is able to deny victory to Tories in the general election, it will land Britain’s politics in another deadlock and the UK’s future relation with the European Union into a fresh set of uncertainties. According to the latest survey conducted, it looks that margin is exceedingly tight and tiny and small swings in seats could land Britain into another turmoil.

Also, it is highly expected that the Scottish National Party (SNP could) could do significantly better this time which could dent the fortunes of both Conservative and Labour parties. But conservative party’s performance in Wales could be better this time.

Meanwhile, if things move in line with the YouGov's latest survey, it could be conservative party’s best election in the past three decades.

However, fading prospects of a Tory victory and increase in chances of a Hung Parliament have weighed British Pound in today's trading session. After the stellar rally it recorded in the past couple of months, the Pound slipped as low as 1.3146 against the US Dollars during the early trading session which was approximately 0.4% decline against the previous traded level. However, it recovered from those lows and at 10:18 AM GMT GBP traded marginally (0.07%) lower at 1.3146 against the greenback.

In the wake of a Hung Parliament, it is likely that Brexit would fall into extended uncertainties and could also tie the UK back with the European Union block. But somehow if Labour able to form a coalition government with the support of SNP, Liberal Democrats and with other pro-Remain MPs, they would go for the second round of referendum, which according to them is a way to break this deadlock. However, Liberal Democrats have already cleared their stance over coalition with the Labour Party that they don't want to support the party if Jeremy Corbyn is going to head the coalition. Therefore, in a situation like this, Jeremy Corbyn would be asked from his party to step aside.

If Boris Johnson fails to bag an absolute majority for his party despite a Brexit deal ready in his hand, its consequences could be severe and bad; however, his Brexit deal has already been condemned by conservative party’s previous ally Northern Ireland's DUP, and Liberal democrats earlier said that they wouldn't be there to support Tories.

Many political experts said that DUP and Liberal Democrats are still recovering from their 2010-15 Tory-Lib-Dem coalition.

However, the actual outcome could vary from current assumptions, and it would be good for the UK economy if this time Tories are able to form a stable government.

How is market reacting over the latest opinion polls report that has raised the chance of a Hung Parliament?

Post this news propagated, the domestic asset classes of the UK are in a downturn after the spectacular rally they recorded recently in the past couple of weeks. The gauge for the UK's domestic stocks or widely known as the mid-cap index of the London Stock Exchange- The FTSE 250 index plummeted so far around 221.0 points or 1.08% to 22,560.49 at the time of writing at 10:56 AM GMT before the market close and recorded an intraday high of 20,791.40 and a low of 20,557.25.

The fall was the biggest one-day slump in the FTSE 250 index post-October 28, 2019, the day the announcement for the General Election was made. This move was largely invoked after GBP slumped approximately 0.40% today when the Asian markets were in session.

Meanwhile, at the time of writing at 11:05 AM GMT, GBP recovered all of its losses in the early trading session and was trading marginally higher against the previous closing level at 1.3156 against the US Dollar.

However, the broader index of the London Stock Exchange, the FTSE 100 traded marginally lower against yesterday's closing level.  A decline in the GBP would boost majority of FTSE 100 constituent stocks’ revenue and earnings as FTSE 100 stocks are primally international market-focused businesses and a lower GBP against the US Dollar would provide currency translation gains.

In the wake of a Hung Parliament, investors could witness further deterioration in the domestic asset classes and gains that the mid-cap stocks have accumulated over a potential Boris Johnson victory would erode. However, there are exceptional pockets, where Domino effect may not play out.

However, it would be FTSE 100 stocks, which would be benefited by a plunge in the GBP and if a phase-1 deal between US-China gets concluded, a higher surge could be experienced in the FTSE 100 index. Also, there are some of the exceptional counters where the domino effect would not play out.

From the standpoint of the UK economy, a Hung Parliament would be significantly worse, and it will continue to pull down the already jolted economy and situation could be severe. It would also have a significant impact on this festive season sale of the some of the big retailers and capital goods retailers would experience higher pain this Christmas.

Also, house construction sector, whose stocks recently recorded decent surge at the London Stock Exchange amid heightened optimism that Boris Johnson would return with majority could also face muted housing demand and declining consumer spending in the Housing and Construction sectors.

However, in the latest YouGov survey, it shows that PM Johnson will scrape through with a majority and that would help to break this Brexit impasse and set the future growth catalysts for the British economy.

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