As the Brexit crisis continues, the prospects of a UK general election are looking increasingly likely but first up are next week’s local council elections – and Labour is predicted to net big wins. The Sunday Times says the Conservative Party could lose as many as 1,000 seats while Labour gains 800, according to the most recent opinion polls. The prediction has concerned economists and investors, who are warning of a fall in sterling should Jeremy Corbyn get into Downing Street. Robert Howard, a foreign exchange analyst who sits on the currency desk at Thomson Reuters, told Pound Sterling Live: ”Local UK elections are likely to rattle the pound, the Tory performance on May 2 is of prime interest.”
The analyst predicts if the markets see the elections as negative, they could lead to the pound-to-euro exchange dropped below 1.15, while the pound-to-dollar exchange rate will plummet to 1.28.
He added: “Tory losses of that magnitude could hurt GBP by heightening fears that Labour leader Jeremy Corbyn will become Prime Minister after the next general election.”
This sentiment is agreed by independent stockbrokers The Share Centre, which says some investors could face big losses if the Tories are ousted from office.
Ian Forrest and Graham Spooner, the centre’s investment research analysts, say a Labour Government led by Jeremy Corbyn will impact on sterling due to his plans for denationalisation of certain industries.
Labour has suggested it may renationalise industries include transport, utilities, defence and property – all of which has worried shareholders.
Mr Forrest said: “The market would almost certainly fall if Corbyn comes to power, even when the election is called, the possibility of a Labour government emerging would be likely to spook the market.
“The first big moment would be the publishing of the manifesto, although it is unlikely to be significantly different from current party policy.”
The analyst added the market’s nervousness comes from Labour’s current hard-left administration.
If Mr Corbyn were to become Prime Minister, Graham Spooner said “initially UK plc would be impacted most heavily by a Corbyn premiership, especially sectors such as utilities, defence, rail/bus, financials and property”.
But the analysts say there could be a modest recovery although not for all sectors, with banks and details “not recovering quickly” because of the impacts on the economy.
However there is some good news for investors, with the mining and oil sectors set to make a boon.
Mr Spooner added: “Life will go on and UK businesses will adapt so investors shouldn’t give up on the UK market.
“By all means, an increase in global exposure should be considered but opportunities under a Labour government will arise.
“For example, Labour could spend more, meaning infrastructure companies and affordable housebuilders will likely benefit in the medium to longer-term.”
Mr Forrest concluded: “I would expect the market to be volatile until it can see a) what policies are actually being implemented / likely to be implemented and b) what impact they have on the economy. Once that is known there might be a recovery as opportunities become clearer.”
Local election polls stations open at 7am on Thursday, May 2 and close at 10pm.