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How could the UK general election impact the pound? 

Samuel Birnie July 5th 2024 - 3 minute read

Political events tend to 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 pound rose after former Prime Minister Rishi Sunak called a snap election back in May. Now that the election results are in, with the Labour Party winning by a landslide, we look at the potential implications for the pound.

What are the 2024 UK election results?

Labour stormed to victory at the 2024 elections, ousting the Conservative Party after 14 years of Tory rule.

At the time of writing, Labour has won 412 parliamentary seats, giving them a sizeable majority. The Conservatives have seen their representation in the commons shrink from 376 seats to just 121, while the Liberal Democrats have swelled from 8 seats to 71.

How could the election results impact the pound?

So far, the election results have had a limited impact on the pound. Sterling is inching higher against some of its peers, but the movement is muted.

This is because markets had already priced in a Labour landslide, and the UK general election has unfolded broadly as the polls predicted.

Nevertheless, GBP exchange rates do seem to be enjoying a modest upside. Investors are both relieved that there were no major surprises and cautiously optimistic that the political turbulence of the last few years could begin to subside.

Many analysts are hopeful that the Labour Party’s large majority and shift to the centre will lead to a period of stability and clarity.

Furthermore, a pro-business approach from Labour could help spur growth in the UK economy. Business leaders this morning are urging new Prime Minister Sir Keir Starmer to prioritise the economy, and Goldman Sachs has upgraded its UK growth forecasts for 2025 and 2026.

However, trade association Offshore Energies UK has expressed concerns over plans for a further windfall tax on oil and gas and an end to new North Sea licences.

What is the long-term outlook for the pound under a Labour government?

There are still many questions over the new government’s policies and spending plans, as well as the UK economy’s overall outlook, so it’s hard to forecast with certainty.

It is possible that we could see Sterling strengthen in the medium term as a unified Labour Party pushes ahead with policies designed to grow the UK economy. In addition, relative stability could lead to increased investment in the UK, which would in turn likely be positive for the pound.

In his first national address as Prime Minister, Starmer has vowed to ‘end the era of noisy performance’ and ‘tread more lightly’ on people’s lives, raising hopes that UK politics will become less volatile in the coming years.

One of the key political events that could influence GBP in 2024 will be the government’s first autumn statement. Labour inherits a country burdened with high taxes, high debt, low productivity, and a stuttering economic recovery. The autumn statement will be a big test for the UK’s first-ever female Chancellor, Rachel Reeves.

Overall, it’s possible that UK politics will have slightly less of an impact on the pound in the months ahead than it has done in recent years. British economic news and long-awaited interest rate cuts from the Bank of England (BoE) will likely be the main drivers of movement in the pound in 2024 and 2025.

With the election out of the way, the spotlight now falls on the BoE. The bank refrained from commenting on monetary policy in the run-up to the election to avoid potentially influencing the vote. Upcoming speeches from policymakers could impact GBP in the weeks ahead. Any signals that the bank could cut rates in August may weigh on the pound.

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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