SO AN election that was called to give Theresa May a mandate to negotiate Brexit looks like it has done anything but. The exit poll suggested that the Conservatives would have the most seats, but short of a majority with 314. Add in the Ulster Unionists and allow for the fact that Sinn Fein MPs don’t take their seats and Parliament would be a virtual tie.
This would lead to enormous uncertainty. Just before the polls closed, the pound was trading at $1.2950, while the euro was worth £0.866. Within minutes of the exit poll, the pound had dropped nearly two cents to $1.2768, while the euro was up to £0.8791.
If this poll is borne out by the results (and it was pretty close to the mark in 2015), there will be turmoil in the markets in the morning. The FTSE 100 index closed on Thursday down 0.3% at 7,449.98. Ten-year gilt yields rose three basis points to 1.03%. That left share prices close to a record high, and gilt yields close to a record low. That leaves plenty of scope for disappointment.
On the plus side, this might lead to a softer Brexit than the markets feared. But another election, and more uncertainty, could follow. This blog will be updated during the night.
UPDATE: The first two results have only added to the confusion, with one showing a swing to Labour and the other a swing to the Conservatives. ING comments that
Confirmation of a hung parliament and the failure to have a working government in place over the coming days means that the pound could fall to as low as 1.24 against the dollar. Even a slim Tory majority is unlikely to be convincing enough to suggest that Theresa May’s election gamble has paid off. Potential pressure for the Prime Minister to resign would only add to political uncertainty and further add to the pound’s woes.