Since the shocking UK election result on the 9th June, where Theresa May lost the Conservative Party a majority government, there has been much higher levels of financial market uncertainty as well as political turmoil. The result follows the trend of surprise results similar to the outcomes of the Brexit vote and the US election.

 

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UK Election Results, source: BBC.co.uk

 

The obvious effect of the result would be to the currency market but it seems as though the British Pound has only marginally been affected, decreasing by only 2%. This fall is tiny in comparison to the impact the Brexit result had on the pound. The relatively small impact may be due to the expectation of a softer Brexit but it may also be due to the fact that the pound was already at low levels.

 

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GBP/USD; past 3 months; British Pound fell by 2%

 

The stock market has had mixed results. The FTSE 100 rose by about 1% as the multinational companies that make up the index have benefited from the weaker pound. This is because UK exports are relatively more price competitive when the currency depreciates. However, the FTSE 250 fell by about 0.6%, which is due to the companies in the index being less internationally diverse and more reliant on the UK economy.

The UK bond market, which had been performing well in the weeks leading up to the election, faced declining yields after the election due to rising prices. Bond prices and yields are inversely related, so a fall in yield is caused by a rise in the bond price. The rise in price is due to bonds being seen as a relatively safer investment as opposed to equities. The increased uncertainty in the UK has lead to a greater demand for bonds, hence causing the prices to rise.