What could the elections all mean for the UK? - Nomura

Analysts at Nomura offered a summary of what the UK elections could mean for the UK.

Key Quotes:

"The Conservative lead over Labour is falling and there are risks of it narrowing further. If this trend continues at its current pace we cannot rule out the possibility of a hung parliament, even if such an outcome is very slim."

"It is in that vein that we have considered, in this note, what a Labour coalition government would look like and the market implications of such a development. In this election, Mrs May’s Conservative Party is pitted against one of the most left leaning Labour leaderships in generations."

"From our perspective (macroeconomics and markets) the most important differences in Labour’s manifesto relative to the Conservatives relate to Brexit (on the softer, more conciliatory, end of the scale) and higher tax and spending with the likelihood of higher deficits."

"For the Gilt market outlook if Labour wins the election, higher Gilt yields are the obvious conclusion thanks to a combination of a) fiscal easing lifting growth and inflation expectations, b) more substantial levels of issuance, c) Brexit plans reducing the chances of a hard exit or cliff-edge."

"At first GBP may suffer as a result from the UK shifting to the left-leaning side of politics and investors’ expectations of larger deficit financing, but because of the higher real yields we would expect and hopes of a soft Brexit (or indeed no Brexit at all) this should eventually provide support to the currency."