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Unruly Britannia: pre-election uncertainty unsettles UK investors and sterling


Business Middle East

Unruly Britannia: pre-election uncertainty unsettles UK investors and sterling

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In this edition we look at how the pound has been affected by the election campaign in the UK and discuss the impact on international oil markets of ending the Saudi-led military operation in Yemen.

The uncertainty over the political situation in Britain ahead of the forthcoming general election has raised concerns among investors and unsettled sterling.

Uncertainty in the UK

For investors, or at least those who are risk-averse, the UK voting day of May 7 cannot come quick enough.

The pre-election period has been marked by jittery markets and a slide in sterling against the dollar. The pound is now at its lowest level since 2010.

Uncertainty over the various potential outcomes is seen as the main factor. But despite the decision of the Bank of England to keep interest rates at 0.5% – in place since 2009 – and signs of strong growth, analysts believe the UK economy is still fragile, which could be reflected negatively in sterling in the coming months.

Investors hope the markets and sterling will stabilise when the outcome of the election is known.

The Middle East View
For more on this issue Faiza Garah spoke to Nour Eldeen Al-Hammoury, Chief Market Strategist with ADS Securities in Abu Dhabi.

Faiza Garah:“The British electoral campaign is weighing on sterling’s exchange rate. How long do you think that will last?

Nour Eldeen Al-Hammoury: “During the election period, the pound has risen, unlike
the last election when the pound has fallen sharply.

“Sterling has currently stabilized at around $1.50 and this is due to the negative results of the US economy, and lower forecasts for interest rates in the US.

“Overall, what we’ll see this time is similar to the last election. Is all this going to last? Certainly yes, but if the same parties that won the last election repeat their success in this vote I think it will help the pound to stabilize again.”

Faiza Garah:“What are the potential consequences of the outcome of this election for investors in the eurozone?

Nour Eldeen Al-Hammoury:
“The current government has managed more or less to stabilize the economy. Growth rates, unlike other countries in the European Union are still strong.The danger lies in talk of Britain leaving the European Union, which is terrifying investor markets, especially with the ongoing crises and conflicts over Greece

“At present, it all depends on what policies will be put in place by the government to be formed after the election. Whatever happens, the asset purchasing programme implemented by the European Central Bank is still attracting investors to European markets, and that will continue, despite the current conflicts over Greece.”

Business Snapshot
In our Business Snapshot section, we analyze the impact of the end of the ‘Decisive Storm’ military operation in Yemen on oil prices.
Saudi Arabia announced the end of the operation, announcing it would be replaced by a campaign called ‘Restore Hope’.

At the same time, Riyadh confirmed that oil production was close to its record high in the month of April. The Saudi oil minister said his country has produced around 10 million barrels per day in April. The statement caused a stir in crude markets, which fear a likely consequence on the prices of black gold.

Those prices have seen a huge decline this year as shown in figures released this month by OPEC.

Analysts await the next OPEC meeting, to be held on June 5 in Vienna, to see if Saudi Arabia will continue with the same high output rate or if it will take additional measures to promote market stability.

All eyes on OPEC
Faiza Garah got the views of ADS Securities’ Nour Eldeen Al-Hammoury on what to expect from those talks.

Faiza Garah: “The ‘Decisive Storm’ military operation has ended and “Operation Restore Hope” has begun. What are the likely consequences for oil prices?”

Nour Eldeen Al-Hammoury: “Prices fell slightly after the end of the military operation, but began climbing shortly after. Now they’re maintaining the same level seen through April; about $57 for Texas crude and $65 for Brent.

“For now all eyes are turning to an eventful month of June, during which there’ll be an OPEC meeting when the oil states will decide on a possible lowering of production.

“There will also be a decision from the US Federal Bank on whether to raise interest rates. And finally, there’s the prospect of a possible agreement between Iran and the major powers on Iran’s nuclear programme.

“Investors are expecting all these events and that’s why I believe oil prices will remain low. But even if prices stay low they will eventually start to rise because there’s no alternative to oil, at least in the next decade.”

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