Election 2017: Pound falls sharply but UK shares rise – BBC News
Image copyright Reuters
The pound has fallen sharply after the UK election resulted in a hung parliament.
Sterling’s value had dropped overnight, and as trading began in London it slipped further, standing 2.3% lower at just below $1.27, with markets worried about heightened political uncertainty.
Against the euro, the pound was down 2% at 1.1344.
However, shares opened higher with the benchmark FTSE 100 index up 1.3% at 7,544.78 points.
A fall in the value of the pound tends to boost the FTSE 100 as the majority of companies in the index have significant operations overseas. A weaker pound means profits earned abroad are worth more when converted back into sterling.
Hung Parliament: What happens next?
Traders had been expecting a clear victory for Theresa May’s Conservative Party, but are now concerned about political uncertainty.
“The unexpected outcome increases the threat of further volatility for sterling and UK assets,” said Mark Haefele, global chief investment officer at UBS Wealth Management.
“The result is likely to call the position of the Prime Minister into question, the government is likely to be relatively weak, and the result further complicates the upcoming Brexit negotiations,” he said.
The BBC is projecting that the Conservatives will be the largest party with 318 seats – eight short of a majority.
While the pound’s move is significant, it is far less striking than that seen in the aftermath of the Brexit vote last June, when it plunged more than 10%.
Some analysts say that might reflect the diminishing prospect of a “hard” Brexit.
Although a hung parliament would mean uncertainty, Neil Wilson at ETX Capital said that a “softer version of Brexit” was now more likely.
“Mrs. May’s mandate to push through her clean, hard Brexit has evaporated. Voters didn’t want to hand her the blank cheque for Brexit. It may leave negotiations in limbo but would also tend to suggest that the downside for sterling is limited,” he said.
Former Business Secretary Sir Vince Cable said “the whole Brexit approach will have to be rethought”.
Sir Vince is returning to the Commons after regaining the seat of Twickenham in southwest London for the Liberal Democrats.
Election analysis from Kamal Ahmed, BBC economics editor
A hung parliament means that the government’s direction of travel is less clear.
Deals with different parties may need to be done – each with very different outcomes.
Nervousness in the markets is likely to increase and investors in charge of large amounts of global capital could decide to move their money to more attractive markets, such as the eurozone where growth has picked up and political risk (the major Dutch and French elections are behind us for example) has reduced.
Sterling initially fell after an exit poll for the BBC, ITV and Sky released as the polls closed at 22:00 cast doubt on an overall Conservative majority, raising concerns about increased uncertainty and a possible delay to Brexit negotiations.
Sterling has been trading in a range between $1.28 and $1.30 in recent weeks.
“The inconclusive election result will be an unhelpful influence at a time when quarter-on-quarter GDP growth already has dropped this year to 0.2%, the slowest rate in the G7,” said Samuel Tombs, chief UK economist, at Pantheon Macroeconomics.
Sorry, your browser cannot display this content.
Find your result
Enter a postcode or seat name
Read more: http://www.bbc.co.uk/news/business-40212594