Nomura

The UK 2019 Election

Ahead of the UK election on the 12th December, we have created a series of graphs to explain political probabilities and comparisons to the market.

  • This is set to be the first UK general election in December since 1923.
  • Will this general election enable Boris Johnson's minority government to gain a majority in the commons, and give him the the numbers in parliament he needs to get Brexit done?

History does not repeat itself, but it often rhymes. The charts below sum up how the three main parties are currently polling.

First, we look at how the polls compared with where they were at this stage of the 2017 campaign. It shows that a) a lot can change, b) early trends suggest a squeeze of the smaller parties and c) the Conservatives enjoy a healthy lead over Labour, for the time being.

UK election polls now vs 2017

We've already seen a few poll releases this week and GBP has had small intra-day reactions as a result, but when we look back to 1974 we can see how well the polls have predicted the elections.

Polls vs. final five weeks

It’s worth reminding ourselves the three points of how political pundits tend to misuse individual polls when making points, and how instead we should read the polls going forward.

Reading the polls

The UK election is 650 smaller elections feeding into one, and it operates under a system named “first past the post.” Unlike a proportional representation system, it’s not about how many votes a party gets overall, it’s about how many more votes a party has versus the other party in each seat. This applies to all the 650 constituencies, each with its idiosyncratic factor and level of historical party support

Implied parliamentary majorities

In 2015 the exit poll got the final result wrong, it expected a hung parliament, but the Conservatives actually gained a majority, meaning although usually correct they are not a failsafe.

Exit polls results vs actual results

When the exit poll is released and produces a surprise, the pound reacts. Sterling was 1% higher in 2015 when the Conservatives surprised higher, 80bp higher in 2016 when Sky news gave a remain exit poll outcome and 1.8% lower in 2017, when it correctly predicted a hung parliament instead of the expected Conservative majority.

The impact of exit polls on sterling

Historically UK election and referendum results have had significant impacts of FX and rates markets, will this election be the same?

Election results vs financial markets

Of the back of our recent client survey, it looks as though a Conservative minority government or a slim majority in the market base case despite the current high level of polling for the Conservatives.

Client survey results

For the full report read GBP: Election night scenario's

Contributor

  • Jordan Rochester

    FX Strategist

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