Raynor de Best
Content expert covering payments and (crypto)currencies
Key indicators for the British pound (GBP) - statistics & facts
The 2024 snap election on July 4 in the UK has the potential to significantly impact the British pound sterling (GBP), much like other political events did in the past. The exchange rate of the pound declined dramatically after the Brexit referendum in 2016, for example, or after the reveal of Liz Truss's mini-budget reveal in 2022. How, then, could the upcoming election impact the GBP rates in 2024 and beyond?
Regardless of whether UK residents should be encouraged or not about the state of the economy going into election day, the pound makes up its own mind. As it is unlikely the snap election impacts the policy plans of the Bank of England, analysts believe the overall implications for the pound sterling should be relatively small.
A relatively calm event for financial markets
Analysts argue that foreign exchange volatility is strongest in times of political uncertainty. The voting intent in the UK does not reveal such upheaval: The opposition Labour Party seemed to be well ahead of the ruling Conservatives. The candidacy of Brexit politician Nigel Farage is expected to take even more votes away from the Conservatives. Additionally, themes like Scottish independence play less of a role in 2024 than before. Finally, Labour and the Conservatives both follow a similar fiscal policy. This likely means that the sterling, and the yield on UK government bonds ("gilts") will be tied to the Bank of England's interest rate policy, and less to a sudden change in government policy.An initial delay on interest rate cuts
The first impact showed itself in May 2024: The pound hit a two-year high against the euro after the surprise election announcement. The Bank of England's trade weighted sterling index even reached levels not seen since 2016, as investors believe that the Bank of England's interest rates are unlikely to change soon. An interest rate decision right before polling day, could suggest either a vote of confidence in the Conservatives, or a warm welcome to a new Labour government. Instead, commentators suspect the Bank of England opts to stay neutral.Economic performance unlikely to lead to a cut in June
The economic performance of the UK may not be strong enough to warrant an early rate cut. The UK's inflation rate in May 2024 was still above the desired target level of two percent, at 2.3 percent. Even more, inflation for services - which excludes energy or food - was at 5.9 percent. Analysts suspect this service inflation figure, especially, will lead to a cut later in the year, likely August, rather than early in the year. This is unlike the European Central Bank (ECB), which is expected to cut its interest rate in June 2024.Regardless of whether UK residents should be encouraged or not about the state of the economy going into election day, the pound makes up its own mind. As it is unlikely the snap election impacts the policy plans of the Bank of England, analysts believe the overall implications for the pound sterling should be relatively small.
