What would happen to the pound if the Tories lose the general election?

Today we consider whether there is even the slightest chance of the Tories not winning this election at a canter.

And, with that in mind, we consider the prospects for the pound.

A cavalcade of cock-ups

When Theresa May, back in April, announced that she was calling a snap general election, the immediate reaction was that she would cruise it. Despite largely favouring Remain, the Tories had now claimed Brexit as their own and, with Brexit occupied, they would stroll to a comfortable win.

They would increase their current tally of 330 seats by at least 15%, perhaps by as much as 20%, and even breach the 400-seat barrier. May was quietly determined, risk-averse and the public liked her. The Leader of the Opposition, Jeremy Corbyn, on the other hand, was an unelectable incompetent. Labour could fall below 200 seats.

The pound loved the news. It shot up from $1.25 to $1.29 and over the next fortnight would even breach $1.30. The polls said a Tory win, the bookies said a Tory win, and sterling said a Tory win.

Then came the cock-ups.

The U-turn on the “dementia tax”, the manifesto, the Tory obsession with occupying the middle ground. Meanwhile, Corbyn’s manifesto was, I hear – I’m not going to try and kid you that I attempted to read it, any more than I did that of the Tories – actually quite good. His TV appearances were strong. And, in his interview with Jeremy Paxman the other night, he actually got the upper hand on several occasions.

Of course, only about 2.5 million people watched the TV interviews, compared to 8.5 million for Britain’s Got Talent, so I doubt they’ll make much difference. The people interested enough to watch the interviews have, for the most part I suspect, long since made up their minds.

But Corbyn has taken Labour’s share of the vote, according to the latest poll of polls from The Telegraph, from around 25% on April 18 to 36% this week. That is quite something.

Factor in this new idea that, whereas once Tory voters would not admit to voting Tory in polls, now some Corbyn-supporters feel a similar shame because of the bad press that accompanies him, and perhaps the share of voters he has is even higher. (I’m not convinced about that one. I think that’s a left-right thing.)

But so badly has May run her campaign, and so well has Corbyn run his, that now people are speaking in hushed whispers about the possibility of a hung parliament, with a Labour-SNP coalition coming to power. If so, that would be an even bigger upset than Brexit.

How Labour could win the election

So can it be done?

At the peak of their popularity on 15 May, the Tories polled as high as 47.7%. But Labour was already surging by that point. The Tories have now slid back to 44% – but that’s still ahead of where they were on 19 April (43%), the day after the election was announced. They are still in poll position.

Labour’s gains have not come at the expense of the Tories. Instead they have come at the expense of the LibDems and UKIP.

Assuming the SNP take 50 seats (they currently have 54), Labour would need to take more than 275 to form a coalition. Thus they would need to gain 46 seats on their current 229. That’s something like 20%, and it would take some doing.

The other possibility is a three-way coalition with the LibDems (I know they’ve ruled that out, but it’s not as if they don’t have a history of U-turns). Assuming the LibDems take ten, that would mean Labour only need to win 36. If the LibDems could get their number to 20, then Labour would only need 26 and it starts to get interesting.

I can’t see it happening. But it’s possible and I’d give it, say, a 20% chance. And the pound doesn’t see it happening either. For all the gains that Labour has made, and for all the revelations about May’s previously perceived competence, it is still trading a few pips off $1.29, where it was when May first made her announcement.

Against the euro, the trading has been rather strange, however. A high was hit at €1.20 on 18 April, the day of the announcement. Since then it has slid and slid to its current price of €1.15. Even when the Tories were ahead, it slid. The might simply be a function of general euro strength, or it might be a Brexit thing, but given the faith the forex traders had in May, something’s a little odd.

From that point of view, I’m actually tempted to buy the pound against the euro here, as it seems to be range-trading between €1.14 and €1.20, despite the fact that pound-euro doesn’t seem to respond either way to Tory polling strength.

In general terms, a Tory win should mean a strong government with a strong mandate, which the currency markets tend to favour. And a Tory win still seems most likely – which should be bullish for the pound. The action of the pound seems to be discounting any other possibility – against the dollar at least.

But the closer we get to a hung parliament, the more instability there’ll be.

A progressive alliance coalition (you would think) would be so unexpected and create so much concern about what happens next, that you would expect the pound to fall through the floor.

The cost of a progressive alliance win to Labour would be another referendum in Scotland for the SNP, which means even more instability. The price for a LibDem seat at the coalition table would, I expect, be another Brexit referendum, which could jeopardise Brexit, which, bizarrely, might favour the pound.

I’m confusing myself here.Let’s keep it simple. The Tories are going to win. The pound is going to go up. But, after 2016, the real surprise now is when the expected happens.

  • Horiboyable .

    Gilts would rise and the flight to quality would accelerate until they were forced to cap money movement if Labour looked like winning.

  • Eon

    They’re taking your children’s school meals and school books and now
    are after their Granny’s homes. You need to vote for a government that
    will protect the Welfare State and for the many not the few.

    In the past 7 years the Tories have attacked the lives of disabled
    people, women and young people under 35 years of age through relentless
    pursuit of austerity measures. In spite of this national debt is now
    higher than ever before and between 2010-15 rocketed by 50%.

    This is not strong or stable government this is spiteful and nasty
    government and the only people who have benefited are the already rich.

    The UK is the first country in the world to be found guilty by the
    United Nations of grave and systematic violations of disabled people’s
    human rights. Something that the Tories should be ashamed of although
    they don’t seem to care.

    When Conservative Minister Iain Duncan Smith resigned in March 2016 he accused his own party of targeting the poor and Disabled people for cuts because they don’t vote Tory. He said: “This is about my concern at a Conservative Government losing its
    direction, and hurting those who are most vulnerable.”

    Anyone can become disabled at any time and of course most of us will grow older
    and need social care at some stage of our lives. The Tories have allowed
    the NHS and social care provision to reach crisis levels.

    The recent Tory Manifesto proposals have been condemned by the National
    Pensioner’s Convention as it means any pensioner needing social care
    will now be forced to pay regardless of their income because for the
    first time ever the value of their homes will be taken into account.
    Pensioners who need care will no longer be able to leave their homes to a
    family member and will have to take out an Equity Loan on their
    property to pay for their care in spite of having worked all their lives
    and paid tax and National Insurance.

    Added to that 1 in 5
    pensioners will no longer get a winter fuel allowance and the triple
    lock on their pensions will also be scrapped.

    There are 13
    million disabled people alone and a further 11.5 million over 65s. Your
    vote matters and you can change the outcome of this election.
    think carefully about the sort of a society you want to live in when
    you cast your vote, how you want to be treated when you get older or if
    you become disabled and if you care vote the Tories out.

    • Horiboyable .

      You talk of rights.
      How can health care be a right? How can education be a right. These products
      and service are not found naturally in nature like a coal mine or a gas field.
      If the state makes healthcare a right, that means they would have to engage in
      the use of force on other individual citizens to supply such a service if no
      one wished to supply it. State education is the same, this gives the state the
      right to forcibly remove my child from the family home and indoctrinate him
      with ideas I may or may not believe in. My sons school, when it is open and the
      teachers are not striking feel they have the liberty to cancel my sons maths
      lesson so he can listen to a member of the LGBT community discuss the pronouns
      they like people to use. My son was taken out of maths to be indoctrinated by a
      man wearing a dress. In my day we would have people like Sir Edmund Hillary
      come and talk to us in an attempt to inspire achievement but now we get men in skirts
      chatting about pronouns

      When YOU decide to
      have children they are your responsibility. How dare you think you can steal
      the fruits of my labour to pay for your children! Why should my children be
      deprived of a holiday, a decent pair of shoes because you cannot take on your responsibility.
      If you have a disabled child, then that is your responsibility and NOONE elses.
      Don’t want to take the risk, don’t have children. Folks like you are the
      biggest abuser of individual rights because you treat the rest of us like a
      beast of burden.

      You are free to ignore
      reality but you are not free to ignore the consequences of reality and this is
      about to run us all over. There is an economic calamity that will hit the west
      by 2020. Western governments are going to default on their bonds and what that
      means because it will not be immediately obvious to you, should be the end of
      socialism unless you want to head down the Venezuela route. The rule of mathematics
      apply to us all. Socialism has NEVER worked, not once. We observed communism collapse
      on its self and now we will watch as socialism do EXACTLY the same.

      • Sounds like you need to start your own country. Crackpot Island.

        What’s stopping you from home schooling if you have such a problem with society at large?

        • Horiboyable .

          Interesting comment from a group thinker

  • Eon

    In 6 years of Tory rule the national debt as risen by £595,000000000 (That’s five hundred and ninety five billion). And more than every single Labour government combined. Please tell me again about the Tories being ‘the party of economic competence’.

    • Sargam

      It’s happened across the Western world. Labour would have been even worse.

    • Horiboyable .

      Remember, there was no money left after Labour!! Gordon Brown spent it all.

    • I think the Tories’ handling of the economy since 2010 has been barely adequate at best, but the increasing debt argument doesn’t really hold water. The nature of a deficit means you’ll keep piling on debt until it’s eliminated. The deficit has come down quite a bit. Not on anything like the timescale promised, but it is moving in the right direction.

      A more valid criticism would be that the Tory approach has squashed a lot of growth from the economy, so they’ve only tackled the deficit from one side.

  • Sargam

    Dominic – that’s ‘pole’ position, not ‘poll. It’s a racing term, not a political one.

  • Sterling would likely plunge quite a bit in the immediate aftermath, as the money world reels from what would be a frightening departure from the status quo of these past 40 years. What happens after that depends entirely on how Labour perform. There’s a certain amount of faith required when giving fiscal stimulus. If the economy doesn’t respond like it should because of some factor you’ve overlooked, you’re in deep, deep trouble. The reality is, Labour would be under enormous pressure to deliver a boost in growth within a few quarters and, with Brexit looming, that’s very unlikely to happen.

    Speaking of Brexit, though, the Brexiteers tell us the fall in Sterling since last June is all fine and dandy and that our mighty exporters will make so much hay we’ll barely notice the inflationary pressures on living costs. By that ‘logic’, a Labour win is surely to be welcomed?

    It’s all moot, anyway. No incumbent party polling at 44% is going to lose a General Election. I do believe the gap has truly narrowed – in large part to Theresa May running such an appalling campaign. Many voters who had vowed not to support Labour under Corbyn are now finding they are prepared to hold their nose and vote Labour. She really has been that bad. However, the polls in which respondents are allowed to self-declare their likeliness to vote are radically overestimating the Labour vote. Survation’s poll at the weekend had 80% of 18-24 year-olds declaring themselves absolutely certain to vote. Only 40% of 18-24 year olds actually voted in 2015 (with 60% declaring themselves certain to do so at the time).

    Together with a regional swing that works against Labour (winning extra votes in the cities, losing them in key marginals across the North and Midlands), we’re still looking at a Tory majority of around 80 seats and Labour reduced to near 200. It could’ve been an 1931-esque massacre had May been better, but you have to wonder if that’s actually in the Conservatives’ best interests: at that point, Labour would have change forced upon it. As it stands, if Corbyn improves on Ed Miliband’s vote share (regardless of losing seats) he will stay on and ensure a Corbynist successor gets on the ballot to replace him, thus dooming Labour to a generation of irrelevance.