In less than 24 hours Britons will head to the polling booths for the 3rd general election in the past 5 years. Ever since the pandemonium which ensued in the markets following the 2016 EU referendum, big political events have garnered a greater degree of interest amongst traders and they now eagerly await another that has the potential to cause quite a stir.
Summary:
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What are the latest polls showing?
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When will the exit polls and final numbers be released?
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What’s the possible market impact?
Latest polls point to Conservative majority
All the major popular opinion polls are pointing to a Conservative majority, although the margin of their lead has narrowed somewhat in recent weeks. Due to the nature of any poll there is a significant margin for error and popular opinion surveys are especially susceptible to this given the first-past-the-post electoral system in the UK - most pointed to a Conservative majority last time. Because of this, and also due to its success in correctly calling a hung parliament in 2017, the Yougov MRP poll is widely seen as the best guess at the outcome of this election.
The second reading from the YouGov MRP poll points to a Conservaitve majority of 28 in forecasting 339 seats for the party. However, with a 95% confidence interval ranging from 311-367 seats there’s still a chance that the party fail to get the 326 seats required for a majority. Source: YouGov
Barring a monumental shock, it seems increasingly likely that this election is boiling down to being a case of whether there’s a Conservative majority or a hung parliament. The most likely outcome seems to be a Conservaitve majority with implied probabilities from bookmakers giving a roughly 70% chance of this, although a circa 30% chance that this fails to transpire is still large enough to keep many guessing.
When will the results be published?
The first real indication of how the election has played out will come from the exit polls, released shortly after polling closing at 10PM Thursday 12th December. These are seen as far more accurate than polls carried out before voting commences and while there can still be a margin of error in these, they have a good track record of showing the final outcome. If the exit polls fail to deliver a decisive outcome then we will need to wait for the actual results to be announced throughout the night. The first results are typically known by around midnight and by 3AM approximately half the constituencies will have reported. By the time most people wake up the result will be almost certain and it’s highly unlikely that by 6AM Friday 13th December the outcome will still be unknown.
Exit polls have previously been fairly accurate, but they can contain a sizable margin of error. Therefore, if the results of tomorrow’s exit poll don’t provide a decisive outcome, it could be the early hours of Friday before the actual result is known. Source: House of Commons, BBC, Goldman Sachs Global Investment Research
Market reaction
Judging by the way the pound has traded in recent months it’s quite clear that the most positive outcome initially would be for a clear Conservaitve majority (IE 335 seats+). Sterling has been rising of late, but the GBPUSD pulled back from an 8-month high after the final Yougov MRP poll showed a smaller majority for the Conservatives than the initial reading (prior poll showed a 68 seat majority). Therefore we could presume that anything but a clear majority for them would be seen as negative for the pound.
The first Yougov MRP poll caused a sharp move higher in the pound after it forecast a Conservaitve majority of 68. Source: xStation
The second Yougov MRP poll caused a sharp move lower for GBPUSD after predicting a Conservative majority of just 28. A final outcome like this could actually be seen as positive for the pound, but the drop from the first reading has raised the chances of a hung parliament and this was likely the reason behind the sell-off. Source: xStation
