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Sterling looks to UK general election as next key risk event

And it is expected to be a rather one-sided affair, with Labour set to claim victory for the first time in 14 years. So, how and what is the impact of this going to be on the pound?

The expectation here is that it is going to be a landslide victory for Starmer and his Labour Party. They are expected to comfortably win an outright majority in the House of Commons, allowing for a clean and easy transition from Sunak’s abysmal tenure as prime minister.

So, what changes are afoot when Starmer takes over?

Well, for one, there should be no increase in corporate taxes at least. The UK has struggled with business investments over the last few quarters and Starmer is expected to try and turn things around there, among other things.

There should also be no major tax increases in general, allowing for households to try and bounce back after having been gripped by high inflation over the last two years.

Instead, their focus seems to be more on the green transition. So, it’s one area that might not see that warm a reception in markets. Then again, it really depends on their increased spending here and in other areas too.

Overall, Labour’s commitment is one that supposedly promises much fiscal responsibility and economic stability. So, if that pledge is upheld, markets might continue to respond more positively to the change in power.

At this stage, I would argue that their win is very much priced in by sterling markets already. So, it should not be a surprise for pound traders. The only risk I see here is that there might be some minor potential downside if the results are less one-sided than anticipated.

The key number to watch in terms of seats in the House of Commons is 326. That will be what is needed to secure an absolute majority, which Labour is expected to comfortably surpass. Most projections have them winning anywhere between 390 to 470 seats, so that tells you the state of play going into the polls tomorrow.

This article was written by Justin Low at www.forexlive.com.

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