In view of Liz Martins, UK Economist at HSBC, a pre-election wobble is a familiar phenomenon in the UK, and it appears 2017 is no exception as not only has the Conservative lead narrowed from 20 points to about 10 points, but a YouGov survey on 31 May threw the cat among the pigeons further, implying Theresa May could fail to secure a majority. Key Quotes “In findings based on a new methodology, their central case suggests the Conservatives could lose seats, Labour could see gains, and the UK could end up with a hung parliament.” “If the YouGov model is right, it would suggest that the rest of the polls, having overstated Labour support in their projections in 2015, have gone too far the other way to compensate. However, YouGov admits its constituency samples are small, and the model allows for possibilities ranging from 274 seats for the Conservatives to 345 (out of a 650-seat parliament) – a wide margin for error by any standards. Moreover, recent by-elections and local elections do not support the hypothesis that the polls have been understating Labour support.” “Most opinion polls are also still implying a majority for Theresa May, albeit a smaller one than she was originally aiming for. But they still suggest it would be bigger than the wafer-thin margin she has now. And, crucially, this would mean she is not facing re-election in 2020, just a year after the UK leaves the EU – something which might otherwise have influenced her negotiating position.” “But what if…? The likelihood is that, to the extent markets are still spooked going into the vote next Thursday, there could be a small relief rally when the results come in. But what if the YouGov model is right? The numbers look messy. The Conservatives might be able to join together with the Lib Dems, independents and Northern Irish unionists to secure a small majority. If they failed, though, it would fall to Labour leader Jeremy Corbyn to try to form a government, with the SNP the most viable partner. This would likely be a big upset to the markets, implying an administration with little experience of government handling the Brexit negotiations, a higher deficit and debt levels and possibly a second Scottish independence referendum.” 

Source FXStreet

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