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UK General Election Preview

6 June 2017PoliticsUK
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UK General Election Preview

On June 8 2017, the UK will head to the polls to elect a new government. As the General Election nears, the opinion polls of voting intentions have tightened significantly, a few weeks earlier the polls had given the Conservatives a 20 point lead. Citi Analysts base case remains that the Conservative Party will increase their current majority of seats; however this is with lower certainty than a few weeks ago.

What are the potential outcomes?*

  1. Big Conservative majority (100+ seat majority) – A larger majority of Conservative MPs in Parliament, means that any Brexit deal negotiated with the EU is less likely to face considerable opposition in Parliament. It also lowers concerns on the stability of the Government pre-2022. A big majority could also strengthen Conservative confidence in the leadership.
  2. Small Conservative majority (50 seats majority) – An unchanged or just slightly larger number of seats compared to 2015 would be a big blow to Theresa May, but may still not totally derail Brexit negotiations. Opinion polls in May 2017, gave the Conservative Party a significant lead that according to polls has dwindled substantially ahead of the polling day. This outcome would however temper optimism that Brexit negotiations will go smoothly. Citi Analysts believe this outcome would be slightly sterling (GBP) negative, however less so than the "Hung Parliament" scenario.
  3. Hung Parliament – A weaker Conservative showing than the 2015 general election would be a big surprise given the polling gap and the expectation that UKIP voters would move to Conservative. In the event of a Hung Parliament, this would considerably complicate the Brexit negotiations, and this weigh heavily on GBP/USD. This scenario would be the most sterling (GBP) negative scenario in the view of Citi Analysts. When PM May announced the snap general election on April 18, markets priced in the first scenario of a Big Conservative majority. This has been Citi Analysts base case scenario; if this occurs they see some upside for GBPUSD in the near-term, with a forecast for GBP/USD of 1.33 in the 0-3months**.

When will the outcome be known?

Voting will take place on June 8 until 22:00 (GMT+1), the counting will take some time, however through the night as different MP seats are announced, the market will start to anticipate the outcome. As the FX markets will be open throughout this period, sterling (GBP) is expected to be volatile as investor's position for the outcome.

If you would like to discuss the potential impact of the general election on your investments or your current currency diversification please contact your relationship manager.

* Citi Analysts: 2017 Elections: May's Premiership Suddenly at Risk? 1 June 2017

** Citi Analysts: Foreign Exchange Forecasts 19 May 2017, next forecasts are due 16 June 2017

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Joe Bond

FX Counsellor

Prior to joining Citi as an FX Counsellor, Joe joined Citi after four years as the Director of a start-up FX broker. His earlier roles were as an FX Dealer based in London and the Middle East. He is a keen traveller, and enjoys skiing each season.

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