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UK general election 2017

The UK has a hung parliament, but how will this affect the markets in the long term? Take your position with IG.

Why trade the election with IG?

  • Go short or long

    Take a position even on markets that look set to tumble

  • Trade on the market reaction

    Spread bet and trade CFDs on over 15,000 markets, including GBP/USD and the FTSE 100

  • 24-hour markets

    Trade on volatility around the clock, with 24-hour dealing on key markets

All trading involves risk. Losses can exceed deposits.

How to trade the election with IG

Spread bet or trade CFDs on over 15,000 markets with IG.

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

Plus, our 24-hour markets enable you to take advantage of any resulting volatility all year round, as well as respond instantly to new developments as and when they emerge.

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Prices above are subject to our website terms and conditions. Prices are indicative only.

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. 

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 comeback 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.

In light of the result, 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.

A weaker pound ought to continue to prove positive for the FTSE 100, but between the prospect of a divided government and the ambiguity of corporate policy, the big cap index is by no means free from worries. Likewise, the FTSE 250’s future is marked by renewed uncertainty, even if it currently looks untroubled by recent events.

In such times, gold is a go-to, and the result may well boost 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 manages 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.

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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Take a position on the impact of key elections, with GBP/USD from just 0.9 points and 24-hour dealing on the FTSE 100.

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