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Market Update

9 June 2017

UK General Election

Summary

  • UK election results in a hung parliament; increased political uncertainty
  • Limited market impact so far; election just one among many factors influencing markets
  • Considerable uncertainty remains over shape of Brexit

Hung parliament increases UK political uncertainty

The UK general election of 8 June has resulted in a hung parliament, defying expectations based on most opinion polls. The Conservatives remain the largest party, although they have fallen short of an overall majority. The precise shape of the next UK government remains unclear, although the most likely options seem to be a Conservative-led coalition or a Conservative minority government.

Market reaction at time of writing (09:30am 9 June) has been limited, in contrast to the sharp moves seen after the Brexit referendum in 2016. Sterling has weakened by about 2% against the US dollar. The FTSE-100 share index has risen by about 0.5%, as the weaker pound increases the sterling value of companies’ foreign-currency revenues. The FTSE-250 index of smaller UK companies is down about 1%.Yields on UK government bonds are little changed.

The election outcome increases UK political uncertainty, especially in the short term. However, we believe that the UK election result should be seen in context as just one factor affecting UK and global financial markets. Broader issues include the resilience of the global economic recovery, the evolution of economic policies, global geopolitical risks, and the strength of investor risk appetite. Many of these factors will not be much affected by the outcome of the UK election.

Considerable uncertainty remains over the shape of the UK’s relations with the European Union and with the wider world after Brexit. However, this would likely have been the case even if the Conservatives had won a substantial majority. The outlook for the UK economy and financial markets is also clouded by risks around the extent to which higher prices will act as a drag on consumption, whether business and consumer confidence will hold up and translate into real spending, and how far exports will rise as a result of sterling’s depreciation, among other factors.

Scottish Widows does not plan to make any changes to its funds in response to the election result. This is in line with our focus on the long term. Nonetheless, the degree of uncertainty over the UK’s political and economic outlook means we will continue to keep developments under close review.

Should I make any changes to my investments?

Everyone’s circumstances are different and we aren’t able to give you advice on what is appropriate for you. As always, if you are considering your own position, you should remember why you invested in the first place and consider the lifespan of your investments. Most importantly, you should seek financial advice before making any changes to your investments.

One way in which you can help reduce the impact of any market volatility is to spread your investments across different asset classes and regions. For more information about investing across different asset classes take a look at our An introduction to diversification in multi-asset funds guide.

Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, you can find one local to you by visiting find a financial adviser, which is responsible for promoting financial advice in the UK.

Investment markets and conditions can change rapidly and, as such, the views expressed in this update should not be taken as statements of fact nor be relied on when making investment decisions. Forecasts are opinions only, cannot be guaranteed and should not be relied on when making investment decisions.