UBS: Labour win will not cause pound to plunge

A Labour victory in this week’s general election will not trigger a dramatic sell-off of the pound, according to UBS Wealth Management.

UBS: Labour win will not cause pound to plunge

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However, a new party in power will lead to volatility and cause the currency to lose some of its shine, according to the group.

Dean Turner, economist concedes “sterling is going to be the one to watch after the election.”

He does not foresee much upside for the currency in the short term should the Conservatives win.

Even if Prime Minister Theresa May secures a majority, sterling will not rise higher than $1.30 against the US dollar over the next 12 months, said Turner, who predicts market anxiety around Brexit negotiations will continue to keep the pound hamstrung.

He is even less confident on the pound’s prospects against the euro, predicting the euro will remain £0.88 against the pound over three, six and 12 months.

Conversely, in the event of a small Conservative majority, minority government or Labour-led coalition, Turner thinks the pound could start to move back into the low £1.20 range but does not think there will be a “dramatic sell-off” in the near term.

“Any other scenario weakness in Conservative government or worse will see some of the shine come out of the pound,” he said, but admitted he was not”overly pessimistic”.

Regardless of the election result, any move by sterling is bound to affect UK equity markets, but the team suspects that for both the FTSE 100 and 250 indices, moves would likely be marginal.

The outlook for UK gilts will also be more driven by the looming Brexit negotiations and inflation expectations than the general election outcome.

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