The official starting gun for the UK general election has begun, as the current Prime Minister David Cameron ceremonially visits the Queen to dissolve parliament. The coming UK election is likely to have no overall majority and is one of the closest modern elections.
What does this mean for Sterling?
The uncertainty of the electoral outcome is a risk to the UK’s currency. The two main parties (Conservative and Labour) will need to create a coalition to form a government but the final make-up is unknown. Traditionally the Tory’s are seen as the “pro-business” party, but the in/out referendum on the UK’s membership of the Eurozone adds a layer of uncertainty. If the formation of a government takes more than a few days and there is a political stalemate, then sterling is likely to be the looser.
The unravelling situation in Greece will be seen as a larger risk to stability of the Eurozone, which impacts the UK as its main trading partner
The UK economy
The UK economy is strengthening and stability is returning, however the future direction is under question depending on how the country’s finances are managed. From a global perspective the UK has recovered from the brink of near collapse as cited by the IMF. The UK’s economy has grown faster than any of major economy in the G10, with unemployment falling rapidly.
The record low borrowing costs combined with quantitative easing have been the foundation for the recovery. The political future for the next 5 years will be decided at the ballot box; however the timing of monetary policy will be decided by the independent Bank of England’s MPC.
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