Despite the Conservative lead over Labour narrowing in recent polls, “interest rate markets have remained very sanguine,” said John Wraith, head of UK rates strategy at UBS.
He said rates would be prone to a sharp reaction on Friday morning if the result is anything other than a Conservative majority.
“But if we do get that, we are likely to see that the closer we get to the Brexit negotiation deadline without a resolution, interest rate expectations will fade away,” he warned.
“A Conservative minority government would probably be the worse for the markets because it would seem to be the most unstable.”
Wraith said without the necessary support in Parliament to continue as a minority administration for a material length of time – and given their intended views on Brexit – it was hard to see how that might work.
“I think there would be an assumption that we have another election in the space of a few months.”
However, Turner concluded the team’s working assumption was for Mrs May to return to 10 Downing Street with a “pretty sizeable majority, larger than what she had in the last Parliament.”
