Wednesday 29 January 2020

Pound to plunge if May fails to secure majority

Prime Minister Theresa May speaking at an event at The Space in Norwich while on the General Election campaign trail. Photo: PA
Prime Minister Theresa May speaking at an event at The Space in Norwich while on the General Election campaign trail. Photo: PA

Colm Kelpie

A hung parliament in today's UK general election could send the pound plunging to around 92p against the euro, analysts have warned - dealing a significant blow to Irish exporters.

Voters across the United Kingdom go to the polls today in a snap election called by Prime Minister Theresa May in April, when she basked in a lead of more than 20 percentage points over her Labour rival.

Brexit was to be the focus, but in a campaign dogged more by security than by the UK's EU exit, and an embarrassing reversal of social care policy, Mrs May has seen that lead narrow to single figures in some opinion polls.

The polls have raised the prospect that not only could Mrs May's once expected significant majority not materialise, no party could end up with an overall majority, and some form of coalition government would have to emerge.

Investec Ireland said a hung parliament is the worst outcome for the pound.

"Given the barrage of polls in recent days, the pound has been decidedly stable over the last few sessions.

"Could it be the calm before the storm or are we about to witness a large, damp squib?" it said in a note to investors.

"It's now universally agreed that a hung parliament would be the very worst case scenario for the pound with some analysts predicting the single currency to spike as high as £0.92 on the news."

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The pound has fallen 2.5pc in trade-weighted terms in less than four weeks. It is now hovering at around 87p against the euro.

Irish exporters, farmers and tourist-related businesses here have all been grappling with the effects of the sharp weakness in the UK currency this year, particularly in the wake of the Brexit referendum.

An outright Labour win today, Investec said, would be less negative for sterling, with a smaller-than-expected win for the Conservatives less negative again.

A significant win for Mrs May could see sterling strengthen, but not by much, as traders already have this priced in.

The expectation is that the Tories will win a majority, although it's not clear by how much.

If she fails to considerably surpass the 12-seat majority predecessor David Cameron won in 2015, her electoral gamble will have failed.

And that will deal her a significant personal blow as she prepares to undertake Brexit talks, which she had hoped to begin with a strong personal mandate.

Mrs May's poll lead has shrunk over the past three weeks.

Latest surveys put her party between 12 points and one point ahead.

Bankers, brokers and money managers are said to be pulling in extra staff to handle any big market moves arising from the election.

Currency, bond and equity trading desks in London will be staffed as results trickle in late today and in the early hours of tomorrow.

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