UK General Election Preview

UK election – Labour poised for power

2024’s election brings to a close the Parliament that oversaw the end of Brexit negotiations, the Covid-19 pandemic and the resurgence of inflation. After three prime ministers in five years, the Conservative Party looks like a spent force. Meanwhile, the Labour Party has undergone an extraordinary transformation from its 2019 defeat, and seems on the cusp of an historic victory. But with the economy still struggling, taxes high and consumers feeling the pressure of high inflation, Labour’s room for manoeuvre is likely to be limited.

What do the polls show?

Labour has enjoyed a sizeable lead over the Conservatives since the end of Liz Truss’ premiership, and while it has been trimmed slightly since the start of the election campaign, it is still registering a lead of around twenty points.

The major story has been the rise of Reform as a real competitor to the Conservatives. Reform is now polling around 17%, and could have a major impact on the election, potentially giving Labour the edge in a swathe of constituencies around the country.

Also worth noting is the demise of the SNP, which faces a wave of losses in Scotland, reducing the risk of another independence referendum in the next parliament.

The latest YouGov MRP seat projection gives the below as the likely distribution of seats in the House of Commons:

How are GBP/USD traders positioned?

Ahead of the election, we have seen both institutional funds and IG clients increasing their long positions in sterling. The clear Labour lead points towards a government with a clear majority, like that of 2019, and thus confidence in the medium-term outlook for the UK economy. This is clear contrast to France, where the risk of political instability has risen dramatically due to the snap elections called by President Macron.

There seems to be little prospect of much volatility around the election itself, with 1-week implied volatility trading around 6%, suggesting a move of around 80 pips.

General Election scenarios

Labour majority: this is likely to prove to be short-term positive for the pound, especially after its pullback over the past month from the June highs around $1.28. A solid Labour majority has been broadly priced in, and much of the discussion will revolve around how the new administration will attempt to revive the UK economy through a loosening of the planning process. Notably Keir Starmer and his senior team have been quite tight-lipped on this topic, in a clear bid to avoid negative headlines that might affect their strong lead.

Hung Parliament: the one alternative to a sizeable Labour win could see the ‘shy Tory’ effect play out, helping to rescue the Conservatives from electoral oblivion and limiting Labour’s gains. While still unlikely, this outcome would likely lead to more volatility in sterling, at least until a coalition government is formed. Given the high probability of the Liberal Democrats making gains in key seats in the South-West, it is likely that a Labour/Lib Dem coalition would swiftly emerge.

GBPUSD chart – 2024 year to date

Election day – key timings

07:00 – 22:00: voting opens at 7am and runs until 10pm. No polls are permitted on election day itself.

22:00: polls close and a combined BBC/Sky News/ITV exit poll conducted by IPSOS UK will be published

23:00: counting begins, with constituencies in the North-East once more expected to battle for the prize of declaring first. While Sunderland held the title from 1992 to 2015, Newcastle has been the quickest in recent years. However, revised declaration times have put several constituencies in contention for the first result, including Newcastle Central and West, Houghton and Sunderland South, Blyth and Ashington, and Tynemouth.

00:00 - 03:00: a slow start with about 85 seats declared. Notable results include Basildon and Billericay, Swindon North, and Rochdale.

03:00 - 05:00: the busiest period with 443 of 650 constituencies expected to declare. Key seats to watch include Cheltenham, Chingford and Woodford Green, Bristol Central, and several in Scotland and Wales.

03:30 – 04:30: results for high-profile politicians like Jeremy Hunt, Nigel Farage, Jacob Rees-Mogg, Rishi Sunak, and Keir Starmer.

05:00 – 07:00: final results come in, including tight races in North Cornwall and Hitchin.

07:00: Expected time for a clear picture of the overall result, potentially indicating a new government.

Key elements to watch

Conservative-to-Reform swing: depending on how many Conservative voters head to Reform, the size of Labour’s majority could be very different.

Tactical voting to affect the outcome: there is much talk about ‘tactical voting’ where voters pick their party based on how likely they are to evict the incumbent Conservative MP. The below chart from the Guardian shows how this may affect the outcome:

Key battlegrounds

The following table from YouGov shows the key battlegrounds on the night: