Election uncertainty stalks the market

Sterling Image copyright Getty Images

Uncertainty - we'll be hearing a lot more of that word over the next few hours.

When the general election exit poll was revealed at 10pm, the pound immediately dropped by 2% as investors took a position that a hung parliament was a possible outcome of the general election.

Why would that cause the currency to decline?

Because a hung parliament means that the government's direction of travel would be less certain.

Deals would have to be done, and those vital Brexit negotiations possibly become all the more difficult.

The future of the UK economy could be confused by a fog of political to-ing and fro-ing.

Nervousness would increase and investors in charge of large amounts of global capital could decide to move their money to more attractive markets, such as the eurozone where growth has picked up and political risk (the major Dutch and French elections are behind us for example) has reduced.

In any election investors would rather a large majority, frankly for either the Conservatives or for Labour, as that means the threat of another general election recedes.

The direction of travel for the economy also becomes more certain.

Now, since that exit poll, the first results have suggested that the Conservatives may be doing slightly better than that exit poll suggested.

The pound has also rallied a little.

What looks likely, though, is that the result is going to be tight, and whoever forms the next government will not have the certainty investors would prefer.

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