On April 18th 2017, Prime Minister Theresa May let the country know that at 11.15 am, there would be an announcement at Downing Street. Speculation ran wild on Twitter as to what this would be, and when the time came, Theresa announced plans to hold a snap General Election on June 8th.
But what does this mean for the pound?
Before the unveiling of the snap General Election, the sterling fell heavily against both the Euro and the US Dollar. When the news of the Election broke, the pound began trading higher against both currencies.
It’s believed that the market, having viewed the Conservatives run of success thus far, have faith that Theresa will continue to operate as Prime Minister and secure her own personal mandate. If May still finds herself at the helm of the country in 2020, she’ll become the longest reigning Prime Minister since World War II not to have a mandate from the electorate of their own. Investors also believe that, if re-elected, Theresa May will be better suited to deliver the exact kind of Brexit deal which she is looking for.
As negotiations with the European Union begin, an increased majority in Parliament will benefit Theresa May’s hand. Experts believe that perhaps an earlier election works better in Britain’s favour – Britain is due to leave the EU in March 2019. If the election schedule had gone ahead as planned, the election would’ve taken place in 2020. This may have interfered in a transitional arrangement regarding Brexit, which would’ve caused wideset uncertainty in regards to the British Economy. With this in mind, perhaps it’s better for the British people to vote for their future earlier.
There’s speculation that Theresa May may also be swayed by the success of the economy which began performing better than expected in the immediate fallout of Britain voting to leave the EU. However, more recent data has depicted a slowdown in the economy, which appears to have grown by 0.4% in the first quarter of the year, a decrease of 0.7% to which it grew during the last quarter of 2016.
Another factor which must be considered is consumer spending, which slowed sharply following the increase in inflation and recurring stagnation in wages growth. In the first quarter of the year, consumer spending was at its slowest pace for three years. Meanwhile, retail sales are currently growing at their weakest pace since the final quarter of 2008, when Britain’s financial crisis was in full swing.
The eyes of the business world will be firmly locked on the Conservative manifesto in the weeks to come, which will centre around Theresa May’s approach to the UK’s trading relationship with the EU after March 2019. However, there are countless other challenges still facing Britain. A leading concern is the endless struggle to reduce the deficit which currently remains amongst the highest in the world, although it’s expected to fall to 2.6% of GDP in the current financial year. Investors are also tentative, hoping that Theresa will promise to retain the ‘triple lock’ on state pensions, which are regarded more and more frequently as being ‘unaffordable’.
Concerns have also been raised as to whether Theresa May will promise not to raise income taxes, national insurance and VAT – an issue which many felt tied the hands of the Chancellor Phillip Hammond. David Cameron’s expensive promises to allocate funds to spend on the NHS and aid to countries overseas are also due to be watched closely.
In recent months, Nicola Sturgeon and the SNP have been an unforgettable movement in recent British politics with talks of a second independence referendum. Experts believe the SNP would benefit from a repeated performance of 2015; failure to achieve this would be seen as reducing the risk of a second independence referendum. This in turn would benefit the pound.
To summarise, Theresa May’s decision to bring forward a general election, which many expect her to win, would benefit the pound.