Call for an early general election show encouraging signs for the pound

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On April 18th, the UK prime minister Theresa May dramatically announced a snap General Election on June 8th, two years earlier than its original 2020 date. The reason being to ensure a smooth Brexit from the EU by a publicly-backed party and intermediary MPs - something that she previously cited as being unworkable due to the divisions in Westminster.

Now the dust has settled on the announcement, it is important to assess how this will affect the British economy, investments and ultimately, your portfolio.

The pound rose immediately after the news as polls predicted a Tory majority yet again, with even more seats in the Commons than the 2016 result. Results also indicate confidence in May’s ability to negotiate a “softer” Brexit and a UK-EU fair trade deal, thus better for the British economy. However, from the last few public votes, we all know just how “indicative” polls really are.

Some may say it’s a shrewd move on May’s part, as holding an election now means she will not have to face electors again until 2022, allowing her several years to negotiate an EU exit deal during which time Britain may have to apply EU rules including free movement.

Deutsche bank commented on the move: “It will dilute the influence of MPs pushing for hard Brexit, strengthening the government’s domestic political position and allowing earlier compromise over key EU demands for a transitional arrangement.

Plus, it strengthens the PM’s overall negotiating stance who in recent weeks has clearly fallen in line with the European approach. This will involve a settlement of the Brexit payments and other divorce aspects first to be followed by a lengthy transitional period during which the final outcome of Brexit will emerge.

This sequenced approach materially reduces the “crash risk” of Brexit negotiations and…reduces downside risks for the UK growth outlook”.

As of writing the pound is at a five-month high rising to $1.28, however still well below the $1.50 peak at the time of the Brexit referendum.

As always time will only tell the full extent of the general election – will it make for a softer Brexit? Will it inject confidence in the markets and will the pound come back from a record slump?

The key is to watch, wait and stay close to your advisor.

© 2017 Guardian Wealth Management