How can the UK elections affect the pound?

Before the elections in the UK, which will be held on July 4, the pound strengthened on expectations of a victory for the opposition Labour Party. However, the future of the national currency depends on the ability of the next government to convince investors of the reliability of its economic plans.

The current exchange rate of the pound has returned to the level it was at the time of the Brexit vote in 2016. This is due to the prolonged volatility caused by the unpredictable policies of the ruling Conservative Party.

The new Labour government faces a difficult task: on the one hand, it is necessary to maintain investor confidence, and on the other, to solve the economic problems left by the Conservatives.

One of these problems is the high ratio of public debt to GDP, which has reached a 63-year high, as well as a decrease in foreign direct investment during 4 of the last 5 quarters until the end of 2023. Solving these problems will require either higher taxes or increased borrowing.

The future of the pound will depend on the strength and determination of the Labour majority in stimulating economic growth. In the case of a weak and uncertain political course, the pound risks further weakening and volatility.