The pound gained in value against many of its major currency counterparts this week, including the euro, US dollar and Australian dollar.
In part, this is because the Conservative Party’s lead in the opinion polls is widening, ahead of December 12th’s UK general election. This has strengthened the pound, because the financial markets prefer a single political party to win the vote, which will contribute to the UK’s political and economic predictability and stability.
However, it’s worth noting that although sterling has gained this week, UK economic data has been largely disappointing, with economic growth, employment, inflation and retail sales statistics all below forecasts. If this downbeat trend continues, this may affect the pound looking ahead.
One reason why the pound has gained in value this week is because the Tories look more likely to win a majority of MPs in the House of Commons, ahead of next month’s vote.
For instance, according to respected pollsters YouGov, the Conservatives now stand at 42%, 3 points above YouGov’s November 8th poll, and 14 points above Labour. Traditionally, a 10 point lead has been enough to grant the winning political party a majority in Parliament.
Although there are lots of polling companies, the financial markets pay close attention to YouGov, because they’re the only company to accurately predict 2017’s election result, when Theresa May lost her majority.So, these rising odds of a stable, one-party government have lifted the pound.
However, it’s important to note that the changing surveys of Britons’ voting intentions may continue to affect sterling’s value, up to the December 12th vote. Moreover, not all the polls point to a convincing Tory victory.
For example, a Survation Survey this week put the Conservatives at 35%, just 6% ahead of Labour’s 29%. So there’s uncertainty in these polls, which may influence the pound in the coming weeks.
Turning to the UK economy, it’s been a downbeat week, in spite of sterling’s gains. For instance, this Monday we learnt that the UK expanded by just 0.3% in Q3, over the Summer, below forecasts for 0.4%. What’s more, on an annual basis, the UK grew by just 1.0%, the least in almost a decade.
Elsewhere, while UK unemployment fell by 0.1% in the three months to September, to 3.8%, joblessness simultaneously rose, while the number of available job vacancies fell.
UK inflation surprisingly declined by 0.2% last month, to 1.5%, further below the Bank of England’s 2.0% target, while UK retail sales unexpectedly dropped by 0.1% last month too. As I say, if this trend continues in coming months, this may influence sterling.
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