How have markets reacted?
In the immediate aftermath of Theresa May’s election announcement back in April, the pound surged to its highest level of 2017. Little surprise, given the confidence the markets had in a Tory victory. But this confidence was misplaced, and, when the shock outcome hit home, sterling fell over two cents against the dollar.
The Tories’ £1 billion confidence and supply arrangement with the Democratic Unionist Party (DUP) has played its part in staving off the volatility that threatened to rear its head. But this may create its own set of issues in the long term – not least with the other devolved governments, who believe they have been short-changed. Even now, questions still remain over May’s future and the political impact of her misjudgement.
May’s decision to hold an election had also had a significant impact on the FTSE 100, whose constituents have been benefitting from a weak pound and cheaper exports. Ahead of the vote, a resurgence in sterling resulted in the FTSE’s worst fall since the EU referendum. But this disappointment was quickly forgotten. The election result knocked the pound off its perch, and the large-cap index has been sitting pretty ever since.
So too has the FTSE 250, which, given its domestic exposure, is viewed as altogether more vulnerable than its large-cap cousin. In spite of this, it’s gone from strength to strength, and continues to hover around record highs – at least while Brexit negotiations are in their infancy.