Sterling welcomes May’s election call

The Prime Minister’s call for a snap General Election saw the pound surge higher despite expectations for future interest rates remaining more or less unchanged, having fallen over the preceding month. With the Conservatives enjoying a seemingly-unassailable lead in the polls, they will probably return to Parliament with a much larger majority. That will limit the difficulty Theresa May has pushing any Brexit deal through Parliament by reducing the risk of her being bent to the wills of Eurosceptic MPs within her own party. As a result, any deal is closer to the PM’s own preferences, boosting the probability of a “softer” form of Brexit. Markets, therefore, have welcomed the news. Despite the economic data indicating that the economy has lost some momentum, sterling is up to its highest level since December 2016 in trade-weighted terms. The stronger pound did, however, weigh on equities. The FTSE 100 fell by close to 4% on the month with the majority of the fall coming on the day the election was announced.