UK Elections, the repercussions

The conservative party has carved its way into the government again, through the recent elections. On May 7, last week, the Britons decided who they wanted to elect to serve as government for the next five years. Indeed, after much propaganda, the elections were said to be quite close, but the conservatives managed to secure much of the seats in the parliament. The conservative party however won the elections by 99 seats more than the labor party who secured 232 seats.

David Cameron, is a happy man, who is back for another set of five years as the Prime of the government and a lot of hope is attached to him concerning the economy. Taking into account, the global upheaval going on in the world, the British economy is also a huge counterpart of the global economy.

The UK elections coincided with the 8th May Nonfarm payrolls, making the markets more volatile and the charts went mad. All the currencies rallied against each other and indeed on Friday the British pound gained a lot of momentum on the charts. The GBP rose compared to other currencies, sending investors’ sentiment high up.

How will the UK elections affect the Global economy?

Investors made great assumptions that the British economy would be largely affected aftermath the elections. The biggest fear was that the elections could have reshaped Britain’s global role within the economic sphere.

 

      • The UK Market

The 7th May elections are deemed to be the tightest elections of all times. The fears encountered during the elections were that, if the conservative party won the elections, then the referendum on EU membership would be reviewed, else if the labor party had won, energy prices would have been the main concern. The labor party in fact had the intention of freezing the energy prices. But these were the scenarios designed by many investors who closely scrutinized the UK market.

Before the elections, the sentiment went high up on the market, which helped both the British pound and the British index to soar higher. A few days before the elections, the FTSE 100 was near to an all-time high and on Friday the 8th of May, the British index gained by 2 percent overall. On tuesday the 12th of May, the FTSE 100 was still high with the Royal Mail being on top of the FTSE 100, gaining 3.9 percent.

The British pound however rose by 0.85 percent against the dollar, and was up by 1.4 percent against the euro. But previous incidents did not really help to boost sentiment, as in 1987 during Margaret Thatcher’s watch, the stock market did crash. Furthermore, when Tony Blair took over in 2003, the FTSE 100 went low. Therefore, a lot of speculations, did increase volatility on the market.

The Stock market are not likely to see much of the change as expected for the currency market. The future management of the economy is the main issue, as growing concerns for the world economy rises. Taking into account, Greece’s bailout program, there are certain issues that might go against the current situation with Britain carrying business with European countries. The Euro is going down, but is also impeding on the growth of other countries.

 

      • Aftermath the elections, outcome on the global economy:

Will Britain reshape its economic role on the economic front? Well, many Britons well wishers had this fear deep inside themselves. They thought, a new government would bring more policies which might have been unacceptable to many. The EU referendum for example is the next eye catcher. Britain’s membership in the EU, is a matter of concern, since upcoming elections in Germany and France could cause some clashes in the future.

 

The referendum is supposed to be brought forward in 2016. The Queen’s speech is due on the 27th May, and a parliamentary bill for the referendum will be included in the speech.

The Global market, attracted investors from various parts of the world, with the rise and fall of currencies and indices on the market. Due to elections, the GBP rose more against a basket of currencies, giving more opportunities of trades in the market. The U.S. indices were also down for the week, giving more scope for FTSE 100 to rise.

 

However, the elections did not cause much rift, despite the UK economy being a strong economy. Markets were satisfied with the political steadiness prevailing overall. The UK became an example for the world, as ever since David Cameron took over, he has been accredited for UK’s emergence from recession. The UK economy, rapidly shrugged the pains of the recession, and enjoyed a fast growth.

 

The unemployment in the UK also fell to a large number, showing a recovery in the economy. Consumer confidence rose quickly. But the referendum remains the big black spot. Though the British pound is quite strong, a possible exit of Britain from the European Union could also bring dire effects on the world economy as well. The European Union would therefore become a puzzle, without a dis-united Kingdom.

 

The conservatives have recently been a little less welcoming to immigrants from other countries who seek for a better life, or second chances in life. This would mean that the Cameron government would go forward with the controlled immigration and capping welfare. Also Britain has lately become less of an ally in the international relationships joining the European countries and the United-States or the Middle east. Britain participates less in these kinds of decision, Angela Merkel has taken the lead on that.

 

Technical Analysis

Taking into consideration the charts for this week, starting from 11th of May, the British pound has gained a lot of strength compared to its other counterparts. Against the dollar, the pound has been able to cross above the 1.50 level last week. But this week, the GBP has been able to climb higher, surpassing the 1.55 level, which was considered to be the next resistance level. Investors’ sentiment rose on the market, which has helped the GBP to soar higher. The elections brought positivity to the currency market, specially for the GBP.

Warren Tancredi By: Warren Tancredi
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