UK general election 2017

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.

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.

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 226 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. 

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.

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.

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.

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.

With Kensington’s votes still yet to be verified, currently the Conservatives have secured the most seats in the general election, with a total of 318. They are followed by Labour (261), the SNP (35) and the Lib Dems (12).With Kensington’s votes still yet to be verified, currently the Conservatives have secured the most seats in the general election, with a total of 318. They are followed by Labour (261), the SNP (35) and the Lib Dems (12).

With Kensington’s votes still yet to be verified, the Conservatives have so far seen their seats in Parliament fall by 12, down from an original 330. This means they’ve lost their post-2015 election working majority of 17 seats.With Kensington’s votes still yet to be verified, the Conservatives have so far seen their seats in Parliament fall by 12, down from an original 330. This means they’ve lost their post-2015 election working majority of 17 seats.