Quick UK Election Guide

Black male holding flag. Voting concept - United Kingdom

With the first exit polls expected to come out in the UK later today, we provide the likely outcomes and analysis for the relevant parties.

The first exit polls for the UK election are expected to start coming out at 22:00 GMT today.  We think that a clear picture of the voting outcome will emerge around 4:00-5:00 GMT on Friday.  Here is a quick party by party guide and analysis.

Labour:  Expected to get 267 seats from 258 currently.  It would likely pick up 38 seats from the Conservatives and 9 from other parties, while losing 38 to the SNP.  Most projections still give a minority Labour government the highest odds.  For example, odds implied by Betfair suggest a 36.4% chance of a Labour minority government.  This would require the support of the SNP, either explicitly in a coalition (contradicting campaign pledges) or implicitly (for example via a Labour-LibDem coalition with support of the SNP in vote of confidences).  A Labour victory would probably be a mild negative for markets.  Investors are already prepared for a hung parliament and know that Labour has a good chance of leading the new government.  So it wouldn’t be a major surprise.  Moreover, a more pro-growth approach could prove to be beneficial in the medium-term and taking the EU referendum off the table kills one major tail risk for the pound.

Conservatives:  Expected to get 276 seats from 303 currently.  It would likely pick up 11 seats from the LibDems and 1 from UKIP, while losing 38 to Labour and 1 to the SNP.  Betfair puts the odds of a Conservative-LibDem coalition government at 25.6%.  Many observers believe that 290 is the magic number, meaning that is what they would need to secure a coalition majority (326 seats).  This would be a highly unlikely outcome according to the latest polls, though it would clearly be the most favorable one for markets.

Scottish National Party (SNP):  Expected to get 54 seats from 6 currently.  It would likely pick up 38 seats from Labour, 9 from LibDems and 1 from the Conservatives.  Many old Labour voters feel let down by what they see as ‘broken’ promises made to them in the final days of the Independence vote.  But more importantly, with the referendum now off the table, the SNP vote is now a clear choice of voting for Scotland to have a bigger say in Westminster.  In other words, voters who are against leaving the UK can now vote for the SNP.  Whatever Ed Miliband may say in public, he will need those SNP seats to become PM, so Nicola Sturgeon feels she can extract a high price for the party’s support.

LibDems:  Expected to get 29 seats from 57 currently.  It would likely lose 8 seats to the SNP, 8 to Labour and 11 to the Conservatives.  Despite the meteoric fall of the LibDems in this election, the party will still likely play an important “king maker” role.  The reason is that they are the only party that has the flexibility to join both the Conservative and Labour (albeit awkwardly in both cases).

UKIP:  The much discussed right-wing anti-immigration party UKIP will likely get a reality check.  Despite its success in the European elections (picking up 2 Tory defecting seats in the by-elections) and expectations for over 10% in national support, the party is likely to end up with only one seat.  This is in part due to the first-past-the-post electoral system.  But other factors will play a role, and here are a few:  (1) The threat of a Labour government has driven UKIP back to the arms of the conservative party; (2) The scandals over expenses for UKIP leaders dented their reputation; and (3) The sense that the UKIP has no other platform aside from being anti-EU and anti-immigration.

Sterling has lagged since April 13, when the euro bottomed and this current dollar correction began.  Since then, sterling is the third worst performer in the majors and has seen the EUR/GBP cross climb to multi-month highs.  The FTSE has also lagged YTD, up only 5% vs. 16% for the DAX and 14% for the Euro Stoxx 600.  Will this underperformance end after the election?  Probably not, if a weak coalition is the outcome.  Furthermore, the underperformance has also been driven in part by softer UK data.  Until the outlook becomes clearer, sterling will have to fight headwinds that are both political and economic.