2015 UK Election: A Month Of Political Risk

As is any other elections, the 2015 UK election brought with it a considerable risk for financial market, although there does not seem to be a particularly favourite candidate yet.

On May 7, 2015, UK will hold election to choose its new parliament and government. As is any other elections, the 2015 UK election brought with it a considerable risk for financial market, although there does not seem to be a particularly favourite candidate yet.

2015 UK Election

UK is a monarchy constitutional country where its head of state is Queen Elizabeth II, while its Prime Minister takes the role of head of government. Prime Minister is not chosen directly by voters, but is chosen from the party that won majority seats in the parliament. Because of that, the election is done only to choose members of parliament (MP). There are 650 seats in Westminster, which 533 from England, 59 from Scotland, 40 from Wales, and 18 from Northern Ireland.

One of the main characteristic that differ the upcoming election with prior UK elections, is the rise of small parties due to the falling confidence among UK citizens toward the three currently leading parties: Labour, Conservative, and Liberal Democrats. Usually, a party need only to win a bit more than one thirds of seats in the parliament, like how it was when Tony Blair from Labour Party took the PM seat. However, lately the trend shifted because of the rising influence of relatively newer parties like UK Independence Party (UKIP), Green Party, Scotland-designated SNP (Scottish National Party), and Wales-designated Plaid Cymru. With the rising number of political parties, the pressure to establish coalition also rises.

Party leaders in the UK. From left to right: Natalie Bennett (Green Party), Nigel Farage (UKIP), Nick Clegg (Lib Dem), David Cameron (Conservative), Ed Milliband (Labour), Nicola Sturgeon (SNP), Leanne Wood (Plaid Cymru)

Election Effect For Sterling

The election effect on Sterling is actually quite difficult to measure. The election is still in the making, and its economical consequences are relatively uncertain. However, there are a number of subjects that came up related to the result of the election. Some of them are: 

1. UK Membership in the European Union

UK is now a member of the European Union, but is not one of the countries that joined the Euro. However, UK membership in the European Union is greatly opposed in the country, thus there are many pressures for its leaders to take UK out of the EU. Because of that pressure, PM David Cameron have promised publicly that he will hold referendum to determine whether UK will stay or out of the EU, if his party wins in the next election. Meanwhile, UKIP have declared that they are against UK membership in the EU. The problem here is that although separating UK from the EU has became a popular campaign slogan, the idea does not receive similarly warm welcome in the financial market. In this circumstances, the possibility of UK exit from the EUR is quite similar to the current state of the Greek affair; it is uncertain, but very worrying.

2. Bank of England Interest Rate

This month, the Bank of England (BoE) has kept rates steady at 0.6%; half of the reason might be due to the low inflation, but the other half is most probably in order not to sway public opinion ahead of the election. Bank of England surely will also wait till the election winner's economic outlook is out before making any vital and highly influential decisions. Because of this too, the gap between BoE rate projection and the Fed's increases and pushes Sterling.

3. Parliamentary Stalemate

UK economic growth in the current global slowdown is quite good, but its fondation is a less assured. UK current accoutn deficit now is at 5.47% of GDP, the worst among G10 countries. What's more, even after years of austerity, its debts still accounts for 90.60% of GDP. If a solid win is not attained by any of the many parties and further development created a stalemate in the parliament, then it will be difficult for the upcoming Prime Minister to make decisions. And this is, of course, will be bad for Sterling.

So far, polls displayed that the two major parties, Labour and Conservative led the way with approximately similar share of voters, while Lib Dems fell and UKIP jumped. Green Party and Plaid Cymru are still small, but SNP is still dominant in the Scotland and potentially become the winner in the area.