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UK general election 2017

Now the UK has ended up with a hung parliament, how will markets respond? Take your position around the clock with IG.

Why trade the election with IG?

  • Trade on the market reaction

    Trade CFDs on over 15,000 markets, including AUD/USD and the FTSE 100

  • Go short or long

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  • 24-hour markets

    Trade on volatility as results are announced, with 24-hour trading on key markets

How to trade the election

In the wake of the election, you can trade CFDs on over 15,000 markets:

  • FX pairs, including GBP/USD and GBP/EUR
  • Indices, including the FTSE 100 and FTSE 250
  • Commodities, including gold

Following any election, uncertainty about the future direction of the country is at the forefront of global traders’ minds. Our 24-hour markets enable you to take advantage of any resulting volatility in the days and weeks that follow, as well as to respond instantly to new developments as and when they emerge.

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How have markets reacted so far?

In the immediate aftermath of Theresa May’s election announcement, the pound surged to its highest level of 2017. Little surprise, given May’s significant lead in the polls and the confidence the markets had in a Tory victory. 

But after the shock outcome, the pound fell over two cents against the dollar, and any gains owing to the prime minister’s announcement were on track to be undone. The Tories’ quick deal with the DUP staved off the worst of the uncertainty, but questions still remain over May’s future and the Brexit negotiations due to begin soon after the vote.

May’s original announcement also had a significant impact on the FTSE 100, whose constituents have benefitted from cheaper exports over the last few months. The resurgence in sterling resulted in its worst fall since the EU referendum. In the wake of the vote, however, the big-cap index approached record highs, gaining the boost it needed from a weak pound which is bound to take time to recover.

For the FTSE 250, meanwhile, May’s call for a snap election propelled it from all-time high to all-time high. Though the domestically-focused index is seen as particularly vulnerable to Brexit negotiations, clearly the prospect of the Tories’ business-friendly policies had put those concerns to bed. 

But as Labour gained ground in the polls, the FTSE 250 was given a rude awakening. Traders began to lose confidence after its record high at the beginning of June, and the mid-cap index started to slip away — a move that, now the results are in, could well be exacerbated by dwindling faith in May’s leadership.

Markets to watch

When Theresa May called a snap election, her lead in the polls was so substantial that an increased mandate seemed to be a given – a sentiment endorsed by a boost in sterling.

But Jeremy Corbyn’s resurgence in the latter weeks of his campaign upset the best laid plans of May and the markets. Now there are more questions than ever over what’s next for the UK and the impending Brexit negotiations.

Despite the surprise referendum result of last year, the pound had achieved something resembling stability prior to the election. In light of this result, however, expect the pound to revert to a state of continued and heightened volatility as traders take stock of what lies ahead for the British government. As ever, EUR/GBP and GBP/USD will be key pairs to watch, though be mindful of coming US legislation which may keep dollar traders beating to the tune of a different drum.

In theory, a weaker pound ought to prove positive for the FTSE 100, given the benefits its constituents have received from cheaper exports. But between the prospect of a divided government and the ambiguity of a new Brexit strategy, the momentum the big cap index has been building looks soon to be a distant memory. Likewise, the FTSE 250 – which has recently been given a boost by the prospect of Conservative pro-business policy – faces renewed uncertainty in its future.

In such times, gold is a go-to, and the result may well encourage the rally it’s been enjoying for the past few months. Some analysts have anticipated that more political upsets in 2017 would drive the precious metal higher, and a hung parliament might just lend weight to their ambitious predictions.

FAQs

What is a hung parliament?

In a hung parliament, none of the political parties manage to secure an outright majority in the House of Commons. Two parties must then form a coalition government to achieve the majority required. Alternatively, the party with the highest number of votes takes power, but lacks the mandate it needs to pass legislation on its own.

How will a hung parliament affect the pound?

Uncertainty breeds uncertainty, and the hung parliament with which the UK now finds itself is bound to create volatility in the pound. This is likely to be exacerbated in the next few weeks and months, as the markets try to get a handle on what’s next for the UK government and the upcoming Brexit negotiations.

Who won the most seats in the election?

The Conservatives won the most seats in the general election, with a total of 318. They were followed by Labour (262), the (SNP) 35 and the Lib Dems (12). 

How many seats did the Conservatives lose?

The Conservatives saw their seats in Parliament fall by 13, down from an original 330. This means they’ve lost their post-2015 election working majority of 17 seats.

Will the Conservatives form a coalition?

The Conservatives next steps will become clearer over the next few days. A number of parties pre-emptively took a coalition with the Tories off the table during campaigning, including the Lib Dems. The most likely option would be Northern Ireland’s DUP, whose ten seats would take them over the 326 required. But with a very different Brexit agenda to Theresa May, the two parties may struggle to reach an agreement.

Alternatively, May will simply try to lead a minority government. To do so, she’ll need to get the backing of the other parties in a vote of confidence. In any case, this won’t happen until after Brexit negotiations were due to begin on 19 June.

As long as the complexion of our government remains in question, the pound will be on shaky ground. And this ground is unlikely to stabilise once such a decision is reached: by pushing back Brexit negotiations, the prospect of no deal is looking increasingly likely. 

Will May step down as prime minister?

May has confirmed she intends to stay in her role as prime minister, but it remains to be seen if pressure from both within and outside her party will force her to stand aside over the next few weeks.

While stepping down now would create added uncertainty, markets would no doubt rather see her go sooner rather than later, as opposed to an extended period of political gridlock and another knock to the pound further down the line.

What’s next for Brexit negotiations?

Brexit negotiations were scheduled to begin on 19 June, but the hung parliament will likely put paid to that. It will become clearer with time how a divided government will disrupt the transition, but since the clock is already ticking, they will likely be keen to get things underway sooner rather than later. 

Why do elections create volatility?

As with any event whose outcome is an unknown, elections encourage speculation among traders. The less certain a result is, the more volatility you’re likely to see.

This election in particular is seen as a key influence for the financial markets, because it will either cement or upend the direction of the impending Brexit negotiations. So while the Conservatives are expected to gain a mandate, recent political upsets may give the markets cause for added volatility ahead of the result.

See how UK traders react to global volatility events

When was the next election supposed to be held?

The next election in the fixed-term cycle was due to take place in March 2020.

Despite promises that an early vote wasn’t on the cards, clearly the prospect of another general election became all too tempting for May, whose party had been leading significantly in the polls for some time when she called the snap election in April. 

Why did May call an election?

Back in April when Theresa may announced a snap election, the Tories’ lead in the polls was substantial and Labour was floundering. It would give her an opportunity to consolidate her own position in the eyes of the European leaders with whom she would be negotiating, and to secure an increased mandate to make it easier to pass a Brexit deal.

Unfortunately, her plans backfired, with a Labour resurgence bringing about a hung parliament and further uncertainty.  

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