eToro
By eToro
1180 views

The UK election is coming up! How will it affect the European economy?

The British people will be heading to the polls on June 8th, following a snap general election call by Prime Minister Theresa May. As opposed to the recent elections in the US and France, the UK general election could prove to be a less dramatic event, since Prime Minister May is the clear favourite. And yet, recent polls show that the gap has narrowing and May could lose her advantage. As with any election, the results will most likely carry some significance for the British economy, and since it is the world’s fifth biggest economy, could potentially affect other global markets. The Sterling, FTSE, Euro and other related assets could be affected by the results of the vote.

 All trading involves risk. Only risk capital you’re prepared to lose. This is not investment advice.

One of the main reasons this election could carry less of an impact is the fact that the UK and the EU’s economies already took a significant blow when the British people voted last June in favour of the Brexit. Less than a year separates this election and Brexit, and the impact of the latter was already greatly felt last year, with the Sterling crashing to levels not seen since 1985.

brexit

Moreover, financial analysts seem to be in consensus that the more support May gets, the stabler the British economy would be. After all, the reason the Prime Minister called for a vote was to get more seats in both houses of Parliament, in order to have more support when navigating the tricky divorce from the EU.

The opponent: Jeremy Corbyn

Jeremy Corbyn has been the opposition leader in the UK ever since September 2015, when David Cameron was still Prime Minister. Now, he is the leader of the Labour party, and will be facing off against May, in a battle that was believed to be lost before it started, before new polls showed he might have a chance. However, Corbyn’s political views are considered far-left, and judging by the general sentiment in the UK at the moment, for him to receive enough support for winning seems the less-likely option.

Voter turnout could be a major issue in the UK. British polls failed to predict the outcome of the Brexit referendum, and that was attributed to the fact that some 6% of voters who participated belonged to groups that were considered non-voters. Since many young voters belong to this category, and Corbyn is a strong advocate of tuition-free education in the UK, there is a chance that younger voters will get off their seats and cast their votes in his favour.

The day after the vote

It is, of course, impossible to predict what the results will be. If the general sentiment in the UK remains the way it is, and polls are somewhat accurate, Theresa May will most-likely emerge the victor. If so, she would have achieved her goal, receiving much-needed support for the Brexit process.

The UK is leaving the EU. Since Article 50 was triggered by May last March, only an extremely unlikely chain of events could reverse it. Reversing the decision would require the Labour party winning the election, 27 EU members voting in favour of letting Britain back into the Union, and even then it will be debated on the legal level whether or not it is a possibility.

Since it is almost certain that the UK will part ways with the EU by 2019, it is still more likely for the British people to act in favour of securing better trade agreements and a smoother process by voting for May, despite her recent decline in the polls. From an economic standpoint, a win by May is perceived as a stabilising factor, and the more seats she gets, the better-off UK’s economy would be. Therefore, it could be assumed that after the results come in, the Sterling and the FTSE would show signs of strength. However, if May wins by a small margin, or in the unlikely event of a Corbyn win, markets could react erratically.

1180 views