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UK Election: Pound sterling under pressure after shock poll points to deadlock

Currency had strengthened after Boris Johnson became prime minister in the summer

The poll predicted that Britain's Foreign Secretary Dominic Raab is at risk of losing his seat. Reuters
The poll predicted that Britain's Foreign Secretary Dominic Raab is at risk of losing his seat. Reuters

The British pound fell as much as 0.3 per cent against the US dollar on Wednesday morning, although it later recovered, as a major poll found a hung parliament following Thursday’s election remained a distinct possibility.

Boris Johnson’s ruling Conservatives were predicted to get a parliamentary majority of 28 in a poll of more than 100,000 voters across the country by YouGov – down from 68 seats in a similar forecast two weeks ago.

The YouGov method was the only one to predict that Mr Johnson’s predecessor Theresa May would not gain an absolute majority in the last election in 2017.

On Thursday, Labour's finance spokesman, John McDonnell, insisted "there's a good chance of a small Labour majority".

Since becoming Prime Minister earlier this year, Mr Johnson rise in the polls has coincided with Sterling strengthening. He appeared to have succeeded in re-attracting hardcore Eurosceptics who had become disillusioned at his party’s failure to get Brexit done.

The Conservatives expected decisive victory had sent the Pound to an eight-month high over expectations the Brexit uncertainty would finally be over. Mr Johnson has vowed to take the UK out of the European Union next month and his party have selected candidates who back his view.

But the smaller his majority, if he even gets one, the less likely it will be Mr Johnson can push legislation through parliament. The Conservatives have consistently failed to get their Brexit plans to be supported by parliament because they lack the MPs to do so.

Business leaders are also fearful of the impact that Labour’s Jeremy Corbyn could have if he becomes Prime Minister, because of his left-wing views and vow to radically change how society works.

A hung parliament, where no party would have a majority, would likely send the pound plummeting with the Brexit impasse that has dominated UK politics since 2016 set to continue.

“This election remains pretty unpredictable and although a majority for Johnson seems the most likely outcome, we don’t think we can rule out surprises on Thursday evening,” Mark Dowding, chief investment officer at BlueBay Asset Management, told Bloomberg.

According to a briefing note by Danske Bank earlier this week – and before the YouGov poll results were announced – it said an absolute Conservative majority could mean Mr Johnson can get his Brexit deal through parliament before Christmas.

The UK is currently set to leave the EU on January 31, 2020.

But it warned: “We may also end up in the situation with a very hung parliament, which is unable to pass anything. In this scenario, the UK will probably ask the EU for another extension, which we expect the EU to grant despite Brexit fatigue in Brussels. We are probably heading for another snap general election in this scenario.”

Mr Johnson’s critics call him elitist and out of touch. He was heavily criticised this weak for failing to look at a picture of a four-year-old boy being treated on the floor of a hospital, underlining how the UK’s health system is at a breaking point.

He has also threatened to take the UK out of the EU without a withdrawal agreement if parliament refuses to back him. Critics fear this could send the UK hurtling into a recession.

“A small Conservative majority would probably allow Johnson’s Brexit deal to pass, but the prime minister might not have the political latitude to extend the transition period,” wrote Andrew Wishart, an at Capital Economics, in a research note. “In that case, the prospect of a no deal at the end of 2020 would drag down the pound.

The YouGov poll found that foreign minister Dominic Raab was particularly at risk of losing his seat.

Updated: December 11, 2019 06:17 PM

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