Brexit Briefing: What if Labour Wins on Thursday?

According to the latest opinion polls, published after the terrorist attack on London, Thursday’s UK General Election could go any way: a victory for Prime Minister Theresa May’s ruling Conservative Party, a hung parliament with the Conservatives the largest party, or even – albeit less likely – a victory by the opposition Labour Party.

For the British Pound and London-listed stocks, that’s likely to mean an extraordinarily high level of volatility this week. It also means that a big question mark now hangs over the Brexit talks between the UK and the EU that are likely to begin on June 19.

It was already likely that Sterling and London stocks would be buffeted in the weeks to follow by adverse headlines before a clear path to the divorce emerges. Now, though, the possibility of a minority Conservative government or a Labour one has added an extra layer of uncertainty that could make the road to Brexit even rockier for the UK markets.

The latest YouGov/Sunday Times opinion poll puts the Conservatives on 42% and Labour on 38%, a lead of just four percentage points. More importantly, it predicts that the Conservatives will win only 305 seats in the House of Commons, above Labour’s 268 but well short of the 326 seats needed for a majority.

Of course, that needs to be taken with a pinch of salt. Another poll by ICM/The Guardian gives the Conservatives a much higher 11 percentage point lead and, anyway, such polls have often proved wide of the mark in the past. Moreover, the betting market still has the Conservatives as odds-on favorites, many quoting odds of around 1/10.

That means any result other than a Conservative victory is still seen as highly unlikely. But what if they’re wrong? What if Labour wins or the Conservatives fail to win a majority? Not only would the Pound and UK stock prices fall, as the markets see the Conservatives as friendlier, but everything we thought we knew about the Brexit talks would be turned on its head.

Every headline from the talks would buffet the markets. It would anyway. But if there were a hung parliament any agreement by the UK side would need opposition approval. If there were a Labour government, it would need to draw its red lines quickly and firmly.

Such trading conditions would be very difficult for inexperienced traders and a challenge for even those more experienced. So a cautious approach and tight stops will be the order of the day.

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