The UK’s protracted departure from the EU has dominated the headlines and sentiment towards the pound since the referendum back in June 2016. It would take something monumental to upstage Brexit now, such is its influence over Britain’s political and economic future. Even the upcoming general election on 12th December seems like a sideshow to the Brexit saga. After all, the British public is preparing to head to the polling booth as a means to an end – to get Brexit resolved one way or another.
The Brexit election
Having triggered the election in the first place, the UK’s future relationship with the EU is providing the main narrative for the political jousting that defines the election campaign period. It’s no surprise that a recent YouGov survey revealed that 68% of the British electorate rank Brexit in their top three most important issues facing the country. This is up from 64% in the runup to the 2017 general election. According to Ipsos Mori's monthly survey; if voters are asked to name one issue that’s concerned them throughout the last 12 months, Brexit comes out top. 57% named it as the most important issue in the September survey, with no other topic receiving more than 3%.
Let’s look at the election’s impact on the pound. How do the major political parties plan to address the Brexit issue if they win? How could the potential outcomes impact the pound?
When Boris Johnson became Prime Minister back in July, he claimed the UK would leave the EU on 31st October ‘do or die’. However, he was forced to pen a Brexit extension letter to the EU a few weeks later, after MPs failed to approve his revised deal. He subsequently called a general election, in an attempt to achieve the majority victory he needs to get his revised deal through Parliament.
If he achieves his aim, the pound is likely to prosper as the clouds of uncertainty clear, shedding some much-needed light on Britain’s future relationship with the EU. In fact, the currency is already benefitting from a constant stream of opinion polls, which show the Tories currently hold a comfortable lead over their rivals. While this has caused the pound to rise in value against other major currencies in the short-term, we shouldn’t forget the polls less than impressive track record in recent years. The EU referendum, President Trump and the 2017 election being prime examples.
Labour plans to renegotiate the Prime Minister's Brexit deal, before calling another referendum within six months of winning the election. The party claims its referendum would give the public a choice between a ‘credible’ Leave option versus Remain this time round. This would include the right to remain in an EU customs union and retain a ‘close’ single market relationship. On the one hand, this would allow the UK to continue trading with the EU without checks. On the other, it would prevent it from making trade deals with other countries.
It’s not just a section of Labour MPs that are averse to another referendum, after 25 of them wrote to Mr Corbyn saying another public vote would be ‘toxic to our bedrock Labour voters’. The pound wouldn’t be over the moon either, as it feels the weight of yet more uncertainty.
The SNP is pro-Remain and has been campaigning for two repeat referendums: one on Brexit and one on Scottish independence. The party’s ultimate aim is to achieve an independent Scotland that’s a full member of the EU. Another Scottish referendum would give rise to further political uncertainty that could cause further volatility in the value of the pound.
Remain Alliance Parties
Last month, the Liberal Democrats signed an electoral pact with the Green Party and Plaid Cymru in a bid to increase the chances of pro-Remain candidates being elected. Under this ‘Remain Alliance’, the three parties will not field candidates against each other in at least 60 constituencies.
The alliance is spearheaded by Lib Dem Leader Jo Swinson, who has pledged to cancel Brexit by revoking Article 50 if her party wins power. While this would remove an element of uncertainty from the equation, an inexperienced coalition government could put the pound under pressure.
The Brexit Party
You can probably guess what the Brexit Party hopes to achieve. Nigel Farage’s party wants the UK to leave the EU, but it plans to do so without a deal in what it calls a ‘clean-break Brexit’. It believes Mr Johnson's revised Brexit deal should be scrapped because it would still involve paying the EU a £39bn settlement.
Even so, Mr Farage recently announced that his party won’t be standing in seats won by the Conservatives in the 2017 election, amounting to over 300 candidates. The move is designed to clear the path for the Conservatives to secure a majority, raising hopes that Boris Johnson can pass his Brexit withdrawal deal next year. As well as causing the pound to rise in value in the short-term, the news improved sentiment towards the currency in the longer term.
The prospect of a Hung Parliament
It would be remiss of us not to put the often-unreliable opinion polls to one side and consider the prospect of another hung Parliament. Mr Johnson called the election to try and win the majority that finally allows him to get his deal through parliament. However, the vote could bring about another deadlock and with it the prospect of renewed uncertainty. For example, history might repeat itself if the Tories lose seats to the SNP in Scotland and fail to take enough seats off Labour in the North of England.
A Conservative minority government propped up by the Brexit Party and DUP could represent an unfavourable outcome for the pound, as hard-line Brexiteers wield their new-found power. While a Labour minority government, with its more radical instincts limited by a coalition, could also see the pound drop in value. For example, if Labour is propped up by the SNP, another Scottish referendum could be on the cards, with ongoing political uncertainty the joker.
The issues that usually matter
Brexit is the driving force that will dictate who people vote for. With allegiances formed that are solely designed to win votes based on Brexit, this is certainly an election like no other. Some voters might even put years of allegiance to one side and put their cross in a different box this time around.
But we shouldn’t overlook the bigger picture. Under normal circumstances, elections are won and lost on the political parties’ stance on key issues like the NHS. In fact, according to the YouGov survey, the British public considers healthcare and crime to be the second and third most important issues facing the country. In joint fourth place are the environment and the economy, with the latter heavily influenced by Brexit.
These major issues that traditionally grab the headlines at times like this could still swing the vote and impact the currency market. Investors in the pound will continue to keep a close eye on the major party’s investment and borrowing pledges. Doing so will provide an idea of how they intend to address voter concerns, should they triumph. This may influence future taxation levels and monetary policy – particularly interest rates – all of which has consequences for the value of the pound.
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To read a summary of the Conservative Party manifesto, click here.
To read the Labour Party manifesto, click here.
To read the Liberal Democrats’ manifesto, click here.
To find out what’s in the SNP’s manifesto, click here.