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UK general election, GBP, forecast, fundamental analysis
Chart B

As we have alluded to above, predicting the outcome of the election is proving to be extremely complicated, given that the traditional three party system is under threat. That said we examine four possible outcomes below.

Conservative majority

This is the preferred outcome for the markets. A Conservative victory would allow a continuance of fiscal and monetary discipline that George Osborne has tried to introduce in his time as Chancellor.

Free from the moderating influence of the Liberal Democrats, a majority conservative government could attack both budgetary deficits and national debts. David Cameron and George Osborne could also show themselves to be conviction politicians by making the hard choices required to reduce public spending and focus resources where they are most needed.

A Conservative majority government would be a positive result for sterling. However, the question of the UK’s relationship with the EU would need clarification in the eyes of international investors. Events in Greece may provide some breathing space on that front, while the UK’s ‘in Europe but not in the euro’ position may prove to be beneficial once again. However, a Conservative majority is currently seen as the least likely outcome.

Labour majority

This will be Labour’s election to lose, as they merely need to maintain their current standing, or curb any Conservative momentum to be the party with the most seats after the election.

An outright working majority will depend to some extent on where the disgruntled Liberal Democrat voters decide to lay their hats.

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