The pound increased slightly against most of its rival currencies over the last 24 hours, ahead of market confidence for Boris Johnson’s Conservative Party winning a majority in the upcoming General Election. Sterling rallied above 1.17 vs the euro, and 1.29 against the US dollar at the time of writing.
The Conservatives are maintaining their poll lead. However, it was at this point in the last election when Theresa May’s luck ran out. She ended up leading a minority government, which relied on the Northern Irish DUP for support to pass legislation.
Sterling Still Strong as Polls Predict Johnson Majority
According to an opinion poll by ICM for Reuters, the Conservatives’ support fell by one point to 41%, and Jeremy Corbyn’s Labour Party was up two points, placing them on 34%. This support is enough to give the Conservatives a majority of 50. However, conflicting polls over the weekend put the party on a 19-point lead, as we reported yesterday.
The majority of polls give the Conservatives roughly on average an 8-10 point lead over Labour. This has reassured the markets, and sterling is almost at an 8% high since September.
Coalition Could Weaken Sterling
There’s a lot of discussion amongst the smaller parties on how a coalition or supply and demand government could work, if the Conservatives did not win enough seats to command a majority under the UK’s first past the post voting system.
Coalition and supply and demand are different forms of government, where no one party has an overall majority. A coalition government is one where two parties go into a formal agreement to govern together- with both parties having ministers and responsible for their own government departments, as we saw under the Conservative-Liberal Democrat coalition between 2010-2015.
A supply and demand agreement is where one party supports another to pass legislation by supporting a minority government. This is more informal, but the party with more seats could pledge money for causes specific to their smaller partner- as we saw from Theresa May’s agreement with the DUP after the 2017 election (which eventually broke down).
The Options Are Endless
Liberal Democrat leader Jo Swinson has said her party would not support a Labour government with Jeremy Corbyn at the helm. They have also positioned themselves as a “remain” party, whereas Labour explicitly said during a second EU referendum they would not campaign for leave or remain.
Moreover, the SNP could be a possibility depending on their luck in Scotland. Nevertheless, Jeremy Corbyn would have to be willing to offer a second referendum on Scottish Independence- something the markets would probably not take kindly to.
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