How could the UK general election impact the pound? 

Samuel Birnie April 17th 2024 - 3 minute read

Political events have a big impact on the pound, from Sterling’s dramatic decline in the wake of the Brexit referendum to the uncertainty during the partygate scandal and the volatility following Liz Truss’s 2021 mini-budget. 

The political landscape has stabilised since Rishi Sunak took the reins as Prime Minister but another general election is looming, with the potential to infuse the pound with fresh volatility. So, how could the upcoming election impact GBP exchange rates? 

When is the election expected to happen? 

Sunak has said that an autumn election is likely, with Chancellor Jeremy Hunt hinting at a vote in October. 

It is possible that the country could go to the ballot box in the summer, but the PM will likely want to narrow Labour’s lead in the polls and make further progress on his five pledges before calling an election. 

The latest possible date will be 28 January 2025. 

Which party is likely to win? 

At the time of writing, Labour remains far ahead of the Conservative Party in the polls. The latest MRP poll by YouGov saw Labour winning a 154-seat majority if an election were held now, with the opposition party securing 403 seats versus 155 seats for the Tories. 

Labour’s lead could narrow by the time the election comes round – particularly if the UK economy picks up – but most political commentators believe a Labour victory is all but a foregone conclusion. 

How could the election impact the pound? 

Generally speaking, political uncertainty is bad for the pound. Therefore, we could see volatility and weakness in GBP ahead of and during the election, particularly if the gap between the two main parties narrows. 

Labour victory 

If the Labour Party does then win the election and form a majority government, Sterling could strengthen. While markets usually prefer continuity over change, it seems that Labour’s shift to a more pro-business, centre-ground position has wooed investors. 

A Bloomberg poll found that 44% of professional investors think a clear Labour victory would be the ‘most market-friendly outcome’ of the election. 

In comparison, just 25% of finance professionals saw an outright win for the Conservative Party – which has typically been the party of business and finance – as the best result. 

Coalition government 

It’s likely that the most disruptive result for the pound would be a hung parliament, and this is certainly a possibility. A Labour-led coalition is a more likely outcome than a Conservative-led one, but either result could put pressure on the pound. 

If no party can form a majority, then the uncertainty over when and how a coalition will be formed could see GBP weaken. 

Furthermore, coalition governments tend to find it harder to reach a consensus, and there may be other concerns. For instance, if Labour’s pro-business stance is watered down by coalition partners, or if gains for the SNP raise the spectre of Scottish independence, then the pound could face further losses. 

Whatever happens, the election looks set to be one of the key drivers in GBP movement in the year ahead, likely bringing notable volatility. 

Protect yourself against volatility 

If you’re concerned about how currency volatility around the election could impact you, we can help. Currency is our speciality, and we’ll use our expertise to create a risk management strategy tailored to your business. 

For instance, we can help you set up forward contracts. These allow you to fix an exchange rate for up to a year, making it easier to forecast your profits and plan strategically for the future. 

You can also use market orders to target exchange rates above or below the current market level. Your transaction will automatically be triggered if the market reaches that level, helping you capitalise on strong exchange rates and protect yourself from unfavourable movements. 

Your personal business account manager can guide you through the various options and help develop a strategy that meets your unique needs. We’ll also help you execute the strategy and continually evaluate its effectiveness, looking for ways to adapt to any changes and capture new opportunities. 

If you want to find out more about our services, please do get in touch. Our team would be happy to find out more about your business and see where we can add value, and there’s no obligation to make a trade if you decide to open an account. 

Written by
Samuel Birnie

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