Financial markets reaction to the General Election


The results of the General Election are out – we are facing a hung parliament. Prime Minister Theresa May’s gamble did not go as planned, with the Conservatives winning 318 seats (they needed 326 for a majority) and Labour’s Jeremy Corbyn winning 262 seats. Over the weekend, the Conservative party have been discussing a deal with the controversial Democratic Unionist Party, who have 10 MPs, to create a minority government. So, what does this mean for your business and your investments?

How has the pound fared?

As the news unfolded with the exit poll predicting a hung parliament, the pound plunged by 2.34% overnight, trading at $1.2635 against the US dollar, which is a seven-month low. However, the following morning it had climbed and is now trading at $1.27320. Despite heavy losses on Friday for housebuilders and mid-caps (who derive a large proportion of earnings from the UK), international, blue-chip exporters experienced a boost due to the weaker pound.

What about the FTSE 100?

The FTSE 100 gained 1.1%, surging above 7,500. Major housebuilders such as Barratt, Persimmon and Taylor Wimpey fell from 2.4 to 3.5%. Bovis Homes also dropped by 3.1%. The energy sector saw Centrica breathe a sigh of relief as they jumped up by 3.2% due to the possibility that the Conservative’s previous plan to cap energy prices may not happen.

What about our credit rating?

Standard & Poor Global has warned that the UK’s credit rating could be downgraded. This happened last year following the vote to leave the EU. When a credit rating changes unexpectedly, it can affect investor confidence. However, it is of more importance to check the companies you are investing in to see how creditworthy they are.

Expect market volatility

Due to the uncertain political landscape ahead, we can expect great volatility in financial markets. To manage your level of risk, review your investment strategy and consider diversifying across stocks and shares including assets, commodities and currencies. Wise investing relies on sensible risk management. If a company finds themselves directly affected by the results of the general election, e.g. the housebuilders mentioned above, or by new policies affecting their cash flow, this will affect their share price. With Labour winning a sizeable proportion of seats in last week’s General Election, they are now challenging the Conservative’s position on securing a minority government. At this stage, it is still very unclear whether the UK will be looking at a soft or hard Brexit in the future; both approaches will have a direct effect on investor attitudes.

Save, save, save

While the political shaking of our nation continues, it is more important than ever to make sure you have a robust, long-term financial plan in place. In the short-term, there may be potential investment opportunities, but short-term trading can be a risky strategy to take, with many investors who attempt it being left licking their wounds afterwards. It’s easy to face losses due to sudden changes in financial markets. Most importantly of all, it is vital that you have a strong savings strategy in place to provide you with a solid financial buffer for the unchartered waters that lie ahead.

If you are worried about how last week’s General Election results may affect your business or investment strategy, please get in touch and speak to one of our financial planners.