Following the momentous vote last night, we offer the following musings....
On the one hand, a vote of no-confidence might encourage markets with the potential outcome of a softer Labour party Brexit position, which would support sterling. However, investors are also going to fret over Labour’s more controversial policies like nationalisation.
Elections tend to cause sell-offs in markets because they’re inherently uncertain events, but the current situation in the UK is much more complex than a normal general election.
We expect sterling to be volatile until the result of the no confidence vote is known. With the DUP saying they’ll back the conservatives the no-confidence vote is effectively dead in the water - unless there is a big revolt within the conservative party.
If May wins the no-confidence vote then we are going to essentially be in the same place as four weeks ago – as if the vote had never happened, but with a tighter timeline to Article 50 ending.
Markets will be choppy in the coming days but it is worth remembering that nothing fundamental has changed yesterday. The wisest thing for investors to do in the short term is to sit tight!
We will continue to monitor the situation as events unfold!!
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