Unprecedented Swing In Public Sentiment Ahead Of The UK Elections

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Terror Attacks Overshadow Polling Results

The sad news of yet another terrorist attack in the UK over the weekend was clearly the major focus for UK traders. However, the latest polls published over the weekend, which was the final weekend ahead of the elections, proved to be extremely interesting. The Conservative party, which had been showing a strong lead in polls up until recent weeks, saw yet a further narrowing of their lead, with the size ranging from 12% according to ComRes and 1% according to Survation.

Huge Swings In Opinion Polls

While the election campaign has been particularly short due to the unexpected announcement of the early election, volatility in opinion polls has been strong.Initially, after the announcement of the election on April 18^th, the Conservatives were as much as 23% ahead in the polls while they are just 7% ahead on average now. This is a dramatic shift in sentiment which would typically take several years to play out and is unprecedented over the course of an election campaign. Indeed, some polls released recently have even put Labour ahead. Despite the volatility in polling results and the narrowing of the Conservatives lead, the majority of polls still support a Conservative victory.

While the campaigns themselves have clearly had a big impact on public sentiment, another important aspect has been the revival of two-party politics as UKIP’s collapse in support has seen focus shift back primarily to Labour and the Conservatives. One key question is whether this portion of the electorate is going to instead vote for the Conservatives or Labour?

Initially, it was assumed that the majority of former UKIP voters would back the Conservatives because of PM May’s commitment to both Brexit and curbing immigration. However, according to recent research conducted using two focus group, half of one the groups stated that they would now back Labour after Labour leader Jeremy Corbyn declared that we would continue to negotiate Brexit and that there would be no second referendum.

Problems With Polls

Despite the reliance on polls to try and gauge the likely outcome, markets are clearly aware of the fallibility of these polls as shown by the unexpected outcome of both the Brexit referendum and the US elections.One of the issues is that it is becoming increasingly difficult to poll people by phone and as higher numbers of people aren’t able to be contacted, poll makers are having to make more assumptions.  Poll makers who mainly use self-reported likelihood to vote, such as YouGov, typically display the tightest gap between the two parties.

Young Voters Key

One of the key elements likely to determine the outcome of this election will be the turnout among young voters, whom polls suggest are highly likely to mainly back Labour. According to data, voter turnout among the under 25s was 30% lower than for the over 65s during the 2015 election.

The final days

The last days ahead of the election seem increasingly difficult to gauge following the terror attack in London over the weekend. The Conservatives are seen as taking a harder stance on terrorism and as using a more stringent security approach, and so it is possible that the events of the weekend will provoke an emotional response which would appear to favour the Conservatives.

However, Corbyn’s popularity and the Labour parties momentum has been steadily gaining over recent weeks, and if that trend continues over these final days, then it seems that the likely outcome would be a Conservative victory but with a vastly reduced majority. The second most likely scenario is a surprise Corbyn victory for Labour.

Technical Perspective

GBP has been particularly sensitive to polling results over recent weeks with reports of strength in the Conservatives lead, typically supporting Sterling while reports of a narrowed lead have tended to weigh on the UK currency.

As expected, momentum has stalled over recent days as markets await the election outcome. The last six trading days have been spent with the May 26th range (highlighted by the white box) which has yet to be breached on a closing basis. The breakout of the bearish channel, keeps focus on the upside for now.