May 08 ,2015 | by Hari Sri

UK election result sends FTSE, pound soaring

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Britain’s General Election boosted financial markets after a Conservative majority win became clear.

The UK’s General Election race ended with a note of finality on Friday, as the previously too-close-to-call election developed into an emphatic victory for the Conservative party. Sterling soared and the FTSE-100 was lifted higher as investors cheered the news.

Last night (Thursday), exit polls shocked markets by trumping weeks of polls showing razor-thin margins by suddenly predicting the chance of a business boosting Conservative government, perhaps without a formal coalition. Markets had already priced in a hung parliament which may have led to days of negotiations, so the unexpected exit poll boosted UK markets.

“The pound had a difficult day yesterday without losing too much ground, but surged on last night’s early exit poll putting the Tories on 316 seats, still short of an overall majority,” said Michael Hewson, chief market analyst at CMC Markets.

However, as the results rolled in throughout the morning it became clearer that the Conservatives were heading for a majority win.

Sterling leapt against the dollar around 1.5 per cent in Friday’s morning session to hit a fresh three-month high. However, the pair pared gains over a weaker-than-expected trade report. Despite the consolidation, GBP/USD remains more than one per cent higher on the day and near a two-month high.

After its initial two per cent spike higher, the FTSE-100 retreated to range around 1.5 per cent. However, confirmation of the Conservative majority victory saw the FTSE-100’s gains surpass two per cent once more.

Meanwhile, the FTSE-250 index of smaller companies hit a record high as the prospects of crackdowns on betting firms and taxes on mansions evaporated along with the possibility of a Labour government.

Lucian Cook, UK head of residential research at Savills, said that they expect a Conservative majority to see “much of the deferred demand from the pre-election period to flow back into the prime market over the remainder of 2015 and 2016, particularly given that the spectre of a mansion tax is now removed from the market”.

UK government bonds also rebounded on the election news. The yield on 10-year gilts declined to around 1.85 per cent after breaking the two per cent barrier earlier in the week.

Bond markets around the world also took a respite from the recent rout. Demand returned to sovereign debt markets as yields now appear to be sufficiently high enough to attract investors.

Now that the UK election fervour has run its course, markets will look to the ongoing Greek debt saga for direction. In addition, recent US jobs data showed the sector returned to health in April, which raises prospects for the Federal Reserve to raise interest rates sooner rather than later.

Hari Sri

Hari is the LSBF Blog's News Editor. He manages the editorial content on the blog and writes about current affairs, SME, entrepreneurship, energy, education and emerging market news.

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