Britain’s vote catches out the markets—again

SO AN election that was called to give Theresa May a mandate to negotiate Brexit looks like it has done anything but. The exit poll suggested that the Conservatives would have the most seats, but short of a majority with 314. Add in the Ulster Unionists and allow for the fact that Sinn Fein MPs don’t take their seats and Parliament would be a virtual tie.

This would lead to enormous uncertainty. Just before the polls closed, the pound was trading at $1.9950, while the euro was worth £0.866. Within minutes of the exit poll, the pound had dropped nearly two cents to $1.2768, while the euro was up to £0.8791.

If this poll is borne out by the results (and it was pretty close to the mark in 2015), there will be turmoil in the markets in the morning. The FTSE 100 index closed on Thursday down 0.3% at 7,449.98. Ten-year gilt yields rose three basis points to 1.03%. That left share prices close to a record high, and gilt yields close to a record low. That leaves plenty of scope for disappointment.

On the plus side, this might lead to a softer Brexit than the markets feared. But another election, and …read more