Election 2017: Pound falls sharply but UK shares rise

0
111

The pound has fallen sharply after the UK election resulted in a hung parliament.

Sterling’s value had dropped overnight, and as trading got underway in London it slipped further, standing 2% lower at about $1.27, with markets worried about continued political uncertainty.

Against the euro, the pound was down 1.7% at 1.1350.

However, shares were higher with the benchmark FTSE 100 index up 0.9% at 7,515.31.

A fall in the value of the pound tends to boost the FTSE 100 as the majority of companies in the index have significant operations overseas. A weaker pound means profits earned abroad are worth more when converted back into sterling.

International giants such as GlaxoSmithKline and Diageo were among the strongest risers, up more than 2%.

But shares in companies that make their money in the UK were shaken by the result.

Housebuilders saw falls of up to 5%, while retail companies’ shares also fell as a weaker pound makes imported goods more expensive.

Traders had been expecting a clear victory for Theresa May’s Conservative Party, but are now concerned about political uncertainty.

The Conservatives are still the largest party but will be short of the numbers needed to be fully in charge.

While the pound’s move is significant, it is far less striking than that seen in the aftermath of the Brexit vote last June, when it plunged more than 10%.

Some analysts say that might reflect the diminishing prospect of a “hard” Brexit.

Mark Dampier, head of investment research, at stockbrokers Hargreaves Lansdown said: “This is very different to the Brexit vote of last year.

“While the result is a surprise and may lead to another election later this year – market reaction has generally been subdued so far because the Tory government will remain in power but a hard Brexit now looks less likely… a softer Brexit could see sterling recover.”

Former Business Secretary Sir Vince Cable said “the whole Brexit approach will have to be rethought”.

Sir Vince is returning to the Commons after regaining the seat of Twickenham in southwest London for the Liberal Democrats.

Jordan Rochester, economic analyst at Nomura, said the weaker pound could hold back consumer spending: “Greater uncertainty could herald weaker investment, while the impact from a lower sterling could mean weaker consumption; this is not an environment in which the Bank of England would feel comfortable raising interest rates any time soon.”

Domestically, some commentators are suggesting that the Conservative government’s long-running austerity programme, which has seen public spending constrained in a bid to cut UK debt, may be over.

But Jim Leaviss, from M&G Investments, said: “There may be less austerity and fiscal tightening in future under a weakened Conservative Party, but there will be no significant rise in gilt issuance [government IOUs] and the goal of reducing the UK’s debt/GDP over the next few years is likely to remain in place.”

Credit: BBC

Facebook Comments