Leaving the EU?

Market Reactions to the Most Unpredictable UK Elections in Recent Times

The UK is currently EU’s biggest trade partner. An exit from the EU will have a significant impact on the

The UK general election is just around the corner, on the 7th of May. This is the most unpredictable, too close-to-call election in recent times. The leading Labour and Conservative parties are without any clear majority at the moment, creating much market uncertainty, and consequentially, volatility.

Whichever party wins has different policies and programs which could impact the market both positively and negatively. The Labour Party’s policies are generally perceived to be against the growth of the economy, most especially the top earners and businesses. Labour has reinstated their commitment to tackle the issue of a non-domicile status, which allows some groups to save on their taxes.

Labour has also promised to tax big earners and to re-introduce the 50p tax for top earners. It has also advanced mansion tax for properties worth more than £2 million, and has promised to gradually reduce deficit. The party has also pledged to abolish the zero-hour contract and raise the minimum wage to £8.

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The Conservative party has disagreed with Labour regarding their clamp down on the wealthy and non-dorms. They argued that it will drive away foreign investment and damage the economy.

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Investors has perceived the approach of either party from different perspective. Most investors are so cautious of taking an investment decision at the moment, based on the uncertain outcome of the election. Overall, most business chiefs are against the policies of the Labour party, arguing that it might pull the nation’s economy back.

Furthermore, the Conservative party has also highlighted a possible referendum in 2017 with regards to Britain’s future as an EU member. The UK is currently EU’s biggest trade partner, and an exit from the EU will have a significant impact on the UK economy, hurting the free trade agreement between the UK and EU countries. It will have a huge impact on trade and income from abroad.

However, traders and investors are patiently anticipating the outcome of the election. Hedge funds and asset managers have been giving different opinions regarding the election outcome. Goldman Sachs said a Labour win might trigger a sell-off on FTSE 100. Blackrock said sharp market movements are not inevitable after election outcome.

In a real market sense, traders will look to sell Sterling and FTSE 100 on a Labour party win, while traders might take a long position on the back of conservative party victory.

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