Today we consider whether there is even the slightest chance of the Tories not winning this election at a canter.
And, with that in mind, we consider the prospects for the pound.
A cavalcade of cock-ups
When Theresa May, back in April, announced that she was calling a snap general election, the immediate reaction was that she would cruise it. Despite largely favouring Remain, the Tories had now claimed Brexit as their own and, with Brexit occupied, they would stroll to a comfortable win.
They would increase their current tally of 330 seats by at least 15%, perhaps by as much as 20%, and even breach the 400-seat barrier. May was quietly determined, risk-averse and the public liked her. The Leader of the Opposition, Jeremy Corbyn, on the other hand, was an unelectable incompetent. Labour could fall below 200 seats.
The pound loved the news. It shot up from $1.25 to $1.29 and over the next fortnight would even breach $1.30. The polls said a Tory win, the bookies said a Tory win, and sterling said a Tory win.
Then came the cock-ups.
The U-turn on the “dementia tax”, the manifesto, the Tory obsession with occupying the middle ground. Meanwhile, Corbyn’s manifesto was, I hear – I’m not going to try and kid you that I attempted to read it, any more than I did that of the Tories – actually quite good. His TV appearances were strong. And, in his interview with Jeremy Paxman the other night, he actually got the upper hand on several occasions.
Of course, only about 2.5 million people watched the TV interviews, compared to 8.5 million for Britain’s Got Talent, so I doubt they’ll make much difference. The people interested enough to watch the interviews have, for the most part I suspect, long since made up their minds.
But Corbyn has taken Labour’s share of the vote, according to the latest poll of polls from The Telegraph, from around 25% on April 18 to 36% this week. That is quite something.
Factor in this new idea that, whereas once Tory voters would not admit to voting Tory in polls, now some Corbyn-supporters feel a similar shame because of the bad press that accompanies him, and perhaps the share of voters he has is even higher. (I’m not convinced about that one. I think that’s a left-right thing.)
But so badly has May run her campaign, and so well has Corbyn run his, that now people are speaking in hushed whispers about the possibility of a hung parliament, with a Labour-SNP coalition coming to power. If so, that would be an even bigger upset than Brexit.
How Labour could win the election
So can it be done?
At the peak of their popularity on 15 May, the Tories polled as high as 47.7%. But Labour was already surging by that point. The Tories have now slid back to 44% – but that’s still ahead of where they were on 19 April (43%), the day after the election was announced. They are still in poll position.
Labour’s gains have not come at the expense of the Tories. Instead they have come at the expense of the LibDems and UKIP.
Assuming the SNP take 50 seats (they currently have 54), Labour would need to take more than 275 to form a coalition. Thus they would need to gain 46 seats on their current 229. That’s something like 20%, and it would take some doing.
The other possibility is a three-way coalition with the LibDems (I know they’ve ruled that out, but it’s not as if they don’t have a history of U-turns). Assuming the LibDems take ten, that would mean Labour only need to win 36. If the LibDems could get their number to 20, then Labour would only need 26 and it starts to get interesting.
I can’t see it happening. But it’s possible and I’d give it, say, a 20% chance. And the pound doesn’t see it happening either. For all the gains that Labour has made, and for all the revelations about May’s previously perceived competence, it is still trading a few pips off $1.29, where it was when May first made her announcement.
Against the euro, the trading has been rather strange, however. A high was hit at €1.20 on 18 April, the day of the announcement. Since then it has slid and slid to its current price of €1.15. Even when the Tories were ahead, it slid. The might simply be a function of general euro strength, or it might be a Brexit thing, but given the faith the forex traders had in May, something’s a little odd.
From that point of view, I’m actually tempted to buy the pound against the euro here, as it seems to be range-trading between €1.14 and €1.20, despite the fact that pound-euro doesn’t seem to respond either way to Tory polling strength.
In general terms, a Tory win should mean a strong government with a strong mandate, which the currency markets tend to favour. And a Tory win still seems most likely – which should be bullish for the pound. The action of the pound seems to be discounting any other possibility – against the dollar at least.
But the closer we get to a hung parliament, the more instability there’ll be.
A progressive alliance coalition (you would think) would be so unexpected and create so much concern about what happens next, that you would expect the pound to fall through the floor.
The cost of a progressive alliance win to Labour would be another referendum in Scotland for the SNP, which means even more instability. The price for a LibDem seat at the coalition table would, I expect, be another Brexit referendum, which could jeopardise Brexit, which, bizarrely, might favour the pound.
I’m confusing myself here.Let’s keep it simple. The Tories are going to win. The pound is going to go up. But, after 2016, the real surprise now is when the expected happens.