Investors are underestimating the potential for the U.K. government to 'implode,' resulting in a snap general election, a senior foreign exchange strategist told CNBC.
Investors are underestimating the potential for the U.K. government to"implode," resulting in a snap general election, a senior foreign exchange strategist told CNBC.
Stretch pointed to a lack of substantive progress in negotiating the stalemate between the Conservative government and the opposition Labour Party as driving this caution. Stretch suggested that a negotiated exit remains the most likely outcome, and although the timing of such an event remains unclear, the tail risks of a hard Brexit remain modest.Crucially, the potential for an internal leadership contest within the governing Conservative Party, or a fresh general election carrying with it the possibility of a coalition government led by Labour leader Jeremy Corbyn, would see a"substantial retreat in sterling sentiment," Stretch suggested.
"We would view the market as underplaying the risks of a snap election should the Conservative government threaten to implode," Stretch said. Foley said the pound would need to see strong evidence of progress in cross-party talks in order to cast aside fears over U.K. economic performance and Conservative Party leadership.A second referendum has seemingly increased in probability in recent weeks, but it is not being treated as a central case scenario for analysts, and investors drawing on experience may still be reticent to jump the gun.
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