Election Special: Is Pound Sterling Forecast for a Fall After May?s UK General Election?

Modified: Monday, 16 March 2015 23:00 BST - Written by John Cameron

STORY LINK Election Special: Is Pound Sterling Forecast for a Fall After May?s UK General Election?

Yesterday afternoon’s comments from Labour Leader Ed Miliband have brought May’s UK General Election and the effect which it may have on the Pound Sterling sharply back into focus. A fragmented result in the popular poll, which is due to take place in just seven weeks, looks highly likely, with recent opinion polls consistently showing that neither the Conservatives, nor Labour enjoy sufficient support to gain enough seats to win an overall majority.

The situation has caused commentators to speculate that the situation may lead Labour to forge a post-election pact with the fervently anti-Union Scottish National Party and it was Miliband’s comments regarding this possibility which stole the headlines yesterday. The leader of the opposition emphatically ruled out a Labour / SNP coalition, stating that, ‘there will be no SNP ministers in any government I lead’, before spelling out the fact that he was, ‘ruling out a coalition government with the SNP.’ However, the wording of Miliband’s comments left the door wide open to the potential for the SNP to support a minority Labour government, with the party from North of the Boarder ‘taking a view’ on a vote-by-vote basis on whether to support Labour in the house of Commons. Such a situation would see the minority SNP MPs enter into an agreement to supply votes to Labour in a vote of no confidence and is therefore labelled ‘Confidence and Supply’ by political analysts.

The Pound Sterling would be likely to succumb to pronounced selling pressure in the global currency markets if May’s election threw up an unclear result – the market abhors uncertainty and the prospect of having no clear stewardship of Britain’s economy would hit the local tender hard. Until today, investors had been focusing on the possibility of an official Labour / SNP coalition, but with Miliband’s words implying the possibility of a ‘Confidence and Supply’ arrangement with the SNP, the stakes have just got higher. Political bookmakers now rate a ‘Labour Minority’ government the most likely outcome following this year’s poll.

Such a scenario would give the SNP the potential to dissolve the Westminster government at a moment’s notice, whenever they wished. Such a febrile situation would be likely to hit the Pound Sterling even harder than a coalition government involving a political party which is fervently anti-Westminster. For this reason, currency market experts suggest that investors needing to sell Sterling in the near-term should consider exiting the market before 7th May.

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TAGS: Currency Predictions Pound Sterling Forecasts