By Reuters and published by Msn.com
London –Sterling edged higher while UK stock futures fell on Wednesday (May 22) after Prime Minister Rishi Sunak called a parliamentary election for July 4, which analysts said removed a degree of political uncertainty from the picture for traders.
The British currency was up 0.3% on the day at $1.2744, gaining modestly from levels before Sunak started speaking outside his Downing Street residence.
Futures on the FTSE 100 stock index fell 0.7%. They had traded down 0.6% earlier in the day.
The blue-chip index earlier closed down 0.6%, while UK gilt yields rose sharply after British data showed inflation had slowed more slowly than expected in April, undermining the case for the Bank of England to cut interest rates as early as June.
“Currencies like political certainty and the pound is no exception. An election generates unknown variables and moving parts,” Neil Jones, senior FX sales to financial institutions at TJM Europe, said.
“There is very heavy focus on the BoE and the dollar right now and that will remain key, we’ve just added another layer of significance into the mix for the pound,” he said.
Sterling options volatility, a measure of trader demand for protection in the case of large price swings in the future, rose for contracts that cover July 4.
Two-month options volatility rose by the most in one day since mid-April to 6.08%.
A UK election by law must be held by Jan. 28, 2025, and speculation of an early election had been building throughout Wednesday.
The opposition Labour Party has held a lead over the Conservatives of around 20 points in opinion polls since late 2021. Sunak took office in October 2022.
A UK election has been widely anticipated this year, and was not expected to have any immediate bearing on the outlook for the economy or Britain’s debt trajectory.
Still, investors and analysts say that with an election date announced, markets would start to pay more attention to policy proposals, especially from the Labour Party as it leads in the opinion polls.
“Markets really are just looking for stability and certainty from any government coming in, and right now it looks like we are going to get a relatively moderate Labour government that is going to pursue relatively market friendly borrowing policies and markets are looking at it and going ‘thank goodness’,” said Nicholas Rees, an FX analyst at Monex Europe.
Ending months of speculation as to when he would call a new poll, Sunak, 44, stood outside his Downing Street office and announced he was calling the election earlier than some had expected, a risky strategy with his party behind in the polls.
“Now is the moment for Britain to choose its future,” he said, listing what he considers to be the highlights of his time in government, including the introduction of the so-called furlough scheme that helped businesses through the COVID-19 pandemic. “We will have a general election on July 4.”
Sunak heads into the election not only far behind the Labour Party in the polls but also somewhat isolated from some in his party, increasingly dependent on a small team of advisers to steer him through what is set to be an ugly campaign.
But he seems to have decided with some economic gains, such as inflation falling and the economy growing at its fastest pace in almost three years, now was the time to take a risk and present his agenda for a new term formally to voters.
The former investment banker and finance minister took office less than two years ago, and since then has struggled to define what he stands for, becoming increasingly frustrated that what he sees as his successes have failed to be appreciated.
Both parties have all but kicked off campaigning for an election, with the attack lines on the economy and on defence already firmly drawn.
Sunak and his government accuse Labour of being poised to increase taxes if in government and that the party would not be a safe pair of hands for Britain in an increasingly dangerous world as it lacks a plan, charges the opposition denies.
Labour accuses the government of 14 years of economic mismanagement, leaving people worse off, with a series of chaotic administrations that have failed to give the stability businesses have craved to spur economic growth.
If Labour wins the election, Britain, once known for its political stability, will have had six prime ministers in eight years for the first time since the 1830s.
CAPTIONS:
Top: British Prime Minister Rishi Sunak delivers a speech outside Number 10 Downing Street, in London, Britain, yesterday May 22, 2024. Photo: Reuters/Toby Melville and published by Msn.com
Insert: A shop assistant counts piles of British Pound Sterling banknotes at an Apple store in London, Britain, on November 18, 2017. Photo: Reuters/Russell Boyce and published by Msn.com
Front Page: British Prime Minister Rishi Sunak delivers a speech calling for a general election, outside Number 10 Downing Street, in London, Britain, on May 22, 2024. Photo: Reuters/Toby Melville and published by Msn.com
(Reporting by London markets team; writing by Amanda Cooper; Editing by Dhara Ranasinghe and Bernadette Baum)
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