Election latest: what will happen this week?
The British public go to the polls on Thursday to decide the fate of the election. We have a look at the latest polls and what the result could mean for markets.
What do the polls predict?
|Party||Current polling %|
|SNP and Others||5.70%|
The latest aggregated poll from Britain Elects suggests the Conservatives will win a majority when people head to the polls on Thursday. However, the party’s lead over Labour has tightened somewhat over recent weeks and it is far from a certain result. The Conservatives have just under a 10-point lead over Labour, but it is widely accepted that a 6-7 point lead (twinned with the usual margin for error) opens up the possibility of a hung parliament. Looking at the latest individual polls (conducted since 5 December) that form part of the aggregated poll, the Conservative lead varies from as high as 14 to as low as 6.
How accurate have the polls been in previous elections?
Polls are crucial in gauging what the outcome of the vote will be, but they have not always forecast the correct result. In fact, the polls have got it spectacularly wrong in the past.
Most of the polls failed to predict the result of the last two elections. They failed to forecast the Conservatives winning a majority in the 2015 election and instead predicted another hung parliament. More recently, they failed to foresee the result of the last election in 2017, forecasting the Conservatives would win a majority when the party in fact lost it and had to sign a confidence-and-supply-deal with the Democratic Unionist Party (DUP) to stay in power.
Polls are the best way to measure the public’s opinion, but they should not be taken as gospel. Predicting this election is arguably harder than in previous occasions. This is because there is the impact of Brexit: there are Labour-Leavers and Conservative-Remainers that may feel the need to change sides to get the sort of Brexit they want, meaning tactical voting looks likely to play a more significant role than in previous votes.
What about the exit poll?
The exit poll has a better track record of predicting the result of the election. It has been correct in four out of the last five elections, but incorrectly called a hung parliament in the 2015 election. This prompted an inquiry by the British Polling Council because it was rare for the exit poll to get it so wrong.
The reason the exit poll tends to be more accurate than others is because it asks a sample of people how they actually voted as they leave the polling station rather than how they intend to vote. Some will argue that the exit poll has become more accurate since 2015 because of the inquiry and the fact it called the last election correctly in 2017 – even though other polls got it wrong. Still, the exit poll is based on samples and carries a margin of error, meaning it is not guaranteed to get it right.
This year’s exit poll will be announced on the BBC after polling stations close at 10pm on Thursday 12 December. The final result is likely to be confirmed sometime between 4am and 7am on Friday 13 December.
What will happen if the Conservatives win a majority?
If the Conservatives win a majority as is currently expected, then financial markets and the pound could bounce higher. The Conservatives represent the status quo, champion free markets, and are offering a more certain route on Brexit, whereas the opposition Labour party wants to introduce radical change, allow the state to play a greater role over business, and reopen the Brexit debate with a second referendum.
The Conservatives have said the party will put the Boris Johnson’s Brexit deal to parliament before Christmas if it wins, ensuring the UK will be out of the EU by the end of January 2020. Although many businesses will not welcome Brexit itself, they will welcome the certainty it offers compared to the Labour’s proposals.
However, it is important to remember that the divorce from the EU is only phase one. If the UK leaves the EU as the Conservatives plan, then the next, arguably more complex, stage of negotiations about the future trade relationship will begin. Under the party’s deal, trade would continue as normal under a transition period that would last until the end of 2020. Importantly, the Conservatives have said they will not, under any circumstances, ask for that transition period to be extended. However, this means a new trade deal would have to be struck in less than a year, which reintroduces the threat of a no-deal with trade falling back onto World Trade Organisation (WTO) rules if an agreement hasn’t been reached by the end of next year. No country has managed to strike a trade deal with the EU in such a short amount of time.
You can read about the party’s policies and what they could mean for financial markets by reading IG’s detailed look at the Conservative manifesto.
What will happen if Labour wins a majority?
A Labour majority could be a disaster for financial markets because the party wants to radically overhaul all aspects of the economy. The party wants to rewrite the rules for publicly-listed companies, nationalise no less than five industries, empower employees and trade unions, raise corporation tax and reopen the Brexit debate with a second referendum.
A Labour government would amend the Companies Act so companies must ‘prioritise long-term growth while strengthening protections for stakeholders, including smaller suppliers and pension funds.’ It says it will introduce new climate change criteria for all publicly-listed companies on the London Stock Exchange, threatening to ‘delist’ any company that fails to meet its standards within 18 months. It also wants staff to have greater ownership over the companies they work for and more control by being represented on boards.
Labour also wants the state to play a greater role, whether that is by nationalising energy suppliers, water utilities and BT Group’s Openreach division, or by taking public contracts back in-house when they expire, like railway services and infrastructure projects.
On Brexit, the party believes it can strike a new deal with the EU within three months of being elected. This ‘sensible leave deal’ would then be pitched against an option to remain in a second referendum within six months of being elected (so, roughly, by the end of June 2020 at the latest).
The problem for many is that this second referendum wouldn’t offer a proper leave option. Labour has said it wants a ‘permanent and comprehensive UK-wide customs union’ and ‘close alignment with the Single Market’ – both of which are red lines for many Brexiteers. Some have also questioned how a Labour government could strike a new exit deal with the EU and then campaign against it during the referendum. Although leader Jeremy Corbyn has said he will be ‘neutral’ during the campaign, it is known that many Labour MPs (including his front bench) intend to campaign to remain.
You can read about the party’s policies and what they could mean for financial markets by reading IG’s detailed look at Labour’s manifesto.
What will happen if there is a hung parliament?
A hung parliament – whereby no single party can command a majority – is arguably the worst-case scenario for financial markets, mainly because it would inject more uncertainty into an already very uncertain picture. Yet, it is the second most-likely option, according to bookmakers:
|Probability of result||Paddy Power||William Hill||Sky Bet|
|Lib Dem majority||0.20%||0.40%||1%|
The chances of a hung parliament are higher than normal this election, but the need for a majority has never been greater. Every party will need one if they are to get their Brexit proposals through parliament and avoid ending up where we are right now – in a deadlock.
The Conservatives look likely to win the most seats even if they fail to win a majority. However, the party has few friends to turn to if there is a hung parliament. Johnson’s Brexit deal has upset the DUP and the Northern Irish party looks less likely to support the Conservatives again whilst that deal is on the table. The only other realistic partner would be the Brexit Party, but it too has said it would not support Johnson’s deal in its current form.
The more likely result of a hung parliament is a Labour-led government. It has more options, although all of them come at a cost. Lib Dem leader Jo Swinson has said it would support Labour’s plans to hold a second referendum, but wouldn’t enter into any formal partnership whilst Corbyn is a leader. The SNP has said Labour would have to give Scotland a second independence referendum and abandon plans to renew the Trident nuclear programme if it wants the party’s support – both of which are huge demands that Labour is opposed to.
Labour’s view, according to Shadow Chancellor John McDonnell, is that it could operate a minority government that would ‘dare’ other parties to vote against its plans. That may well be true for things like raising the minimum wage, but its more radical plans are far less likely to gain the necessary support.
We could also see resignations in the event of a hung parliament. Johnson, Corbyn and Swinson should all be considered at risk if they fail to deliver a majority. In this event, new leaders could dramatically change the dynamic.
It is not clear how a hung parliament would play out, but it will raise the need for compromise – which no party has been keen to do over the last three years. It could force the larger party to water-down proposals or cater to the demands of smaller ones, and it risks pressing the reset button on the Brexit debate.
Will this election provide certainty or result in more volatility?
This election was called because the House of Commons could not come to a consensus on Brexit, but there is a risk that it could result in even more uncertainty for businesses. There is not a win-win scenario for markets in this election.
A Conservative majority is arguably the best outcome, but it does mean the UK will leave the EU, which will have huge ramifications for businesses. A Labour majority would lead to radical change for the markets and reopens the Brexit debate, providing at least another six months of uncertainty (although it could pave the way to remaining, which would be welcomed by some businesses).
A hung parliament is the worst possible outcome for markets as it would inject fresh uncertainty. There is no reason to think that parties can work together. In fact, they seem incapable of compromising because otherwise we wouldn’t be having an election.
Right now, polls are pointing toward a Conservative majority, but some still suggest we could end up with a hung parliament. A Labour majority looks highly unlikely, but the polls have got it catastrophically wrong before and could do it again. A surprise result will inject more volatility into financial markets compared to the expected result being delivered.
How to trade the election
You can trade the election by speculating on markets such as indices, shares and forex pairs. FTSE 100, GBP/USD, EUR/GBP and UK stocks all tend to move in the run-up to an election, and often continue to move in the fall out of the result – meaning there is opportunity to profit from the UK general election. Plus, forex pairs and indices can be traded 24 hours a day*.
CFDs enable you to profit from markets that are rising or falling during a UK general election. This is because with this financial derivative, you can speculate on the price of an asset without taking direct ownership of it.
*24/7 excludes the 6 hours from 10pm Fri to 4am Sat, and 20 minutes just before the weekday market opens on Sunday night.
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