13th June - General Election review
​We think the Pound is in for a period of volatility since negotiations will likely need to be referred to Parliament. As a result the economy is likely to remain weak as business either cancels or postpones investment due to increased uncertainty. That has implications for monetary policy and probably means the Bank of England facing the need to keep policy at current low levels for an extended period.
As for the UK Gilt, a weaker economy will mean lower tax revenues and either higher taxes which will be negative for already weak growth, or public spending cuts that are unlikely to pass through the current parliament, or more, likely increased borrowing. That is negative for the Gilt.
And if inflation continues to rise due to Sterling weakness, doubly negative for Gilts. And yet, and yet, if the Bank maintains its current QE policy due to economic weakness the downside for gilts could be limited.
Turning to stocks, the FTSE could be a beneficiary here as a weak Sterling inflates the value of overseas companies listing on the London exchange, meaning a weaker Pound would likely continue to support the FTSE, at least medium term.
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