Today the British electorate heads off to the ballot box for a third time in as many years. This time around, voters are being asked to determine who should lead the country through the very tough Brexit negotiations set to begin in just 12 days time.
When Theresa May unexpectedly called the snap election back in April, the Conservative Party was riding high in the polls and there was a strong expectation that her government would be returned with a working majority greater than the 17 seats she had in the last parliament. Confidence in this prediction has, however, declined markedly. The Labour Party has seen its support in the polls jump by roughly 10 percentage points over the past several weeks – an impressive performance for a party whose own MPs forced a leadership challenge just last year because of their perception that Jeremy Corbyn was unelectable.
Given the variability between the individual polls, and the unknown degree to which tactical voting takes place, the range of plausible outcomes goes from large Conservative majority to a Labour-led coalition or minority government (even a Labour majority government cannot be excluded although it would be a big ask). Uncertainty as the final outcome – the first indication will be exit polls published at 10 pm UK time, with the first constituencies likely to declare roughly an hour later – has injected some near-term weakness into UK asset markets.
However, when one looks at UK crowd sentiments it is clear that baseline expectation of most is that Theresa May will be returning to Number 10 Downing Street come Friday. Sentiment towards Sterling remains constructive while UK inflation expectations have continued to move lower. This combination is consistent with the continued austerity of the Conservative Party economic programme but inconsistent with the more reflationary economic programme outlined in the Labour Party manifesto. (Of course, if we get another election shock and Corbyn does get the keys to Number 10 this also means we might be in for some financial market fireworks.)