What does the snap election mean for your finances?
As the nation braces itself for the snap general election, many will be wondering what impact the campaign will have on their finances.
Prime Minister Theresa May’s bid for a huge Tory majority has already given sterling a major boost, while sinking the benchmark FTSE 100 index.
The housing market could also wobble if buyers delay their purchases until after polling day on June 8.
The next few weeks will see politicians making plenty of financial promises in a bid to buy votes, with many aimed squarely at pensioners. Should you be voting with your pocket?
There was instant good news for holidaymakers as the pound soared to a six-month high against the euro, US dollar and other major currencies.
Markets decided that a Conservative landslide would strengthen the Prime Minister’s hand when bargaining with the EU, and this boosted the pound.
Britons responded by loading up on currency ahead of their summer getaway, with the Post Office reporting a near 150 per cent surge in online currency sales.
Post Office Travel Money spokesman Andrew Brown says: “Holidaymakers are buying their foreign money early to take advantage of improving exchange rates.”
In October the pound bought just €1.077, but this week it fetched more than €1.19, an increase of more than 10 per cent, giving somebody exchanging £500 into euros an extra €57 of spending money.
Similarly, sterling has jumped from $1.186 to $1.279, a climb of nearly 8 per cent, worth an extra $47 for every £500 of US currency.
Brown says holidaymakers should watch future movements to calculate the best time to purchase travel cash.
Kathleen Brooks, research director at City Index Direct, says holidaymakers should look forward to further strengthening: “The pound looks good as we head towards the election and could have further to go on the upside.”
A stronger pound could also keep a lid on rising inflation, by cutting the cost of imported goods, especially with the oil price falling last week.
Good news for the pound is bad news for the FTSE 100, because companies listed on the index earn more than three quarters of their revenues overseas.
These are now worth less once converted back into stronger sterling, and the index tumbled 2 per cent within hours of the shock election announcement.
This reverses the effect seen after the Brexit referendum, when the pound crashed and the FTSE 100 soared.
Richard Stone, chief executive at The Share Centre, says stock markets hate uncertainty and surprises: “Any doubts over the election outcome could heighten that volatility, so beware sudden and sharp moves in the opinion polls.”
The predicted clear victory for the Conservatives would put a swift end to the uncertainty, and boost stocks.
“A stronger government with the ability to play a longer negotiating game on Brexit should be a positive outcome for the economy and for markets,” he adds.
All that most investors can do is sit tight and wait for short-term electoral volatility to pass, Stone adds.
Pensions are likely to be a key electoral battleground, with Labour’s Shadow Chancellor John McDonnell issuing a pension “pledge card” before the election was called.
This promised to protect pensioner perks such as free bus passes and the winter fuel allowance, help women affected by the rising state pension age, and extend the pensions “triple lock” to 2025.
This pledges to increase the state pension annually by earnings, prices or 2.5 per cent, whichever is highest, and has been a real boost to pensioner incomes.
Tom Selby, senior analyst at AJ Bell, says Labour’s pledge is “naked electioneering” and we can expect more in the weeks ahead: “The general election is likely to be a bun fight for the ‘grey vote’.”
Two influential Government reviews have called for the costly triple lock to be scrapped.
“However, Mrs May will be nervous about angering pensioners, whose votes will be crucial,” Selby adds.
Tom McPhail, head of pensions policy at Hargreaves Lansdown, says plans to increase the state retirement age may also be put on hold: “There are very few votes to be won by telling 40-somethings they have to work for another year or two before they qualify for their state pension.”
The Chancellor has been considering slashing tax relief on pension contributions, which cost the Exchequer around £48billion a year.
Fidelity International head of pensions policy Richard Parkin says Philip Hammond might have more freedom to act in the autumn: “With a big majority he could go for reducing relief.”
The property market remains unstoppable with latest official Land Registry figures showing prices rising 5.8 per cent in the year to February, hitting an average £217,502.
Russell Quirk, chief executive of online estate agent eMoov.co.uk, says the surprise election has failed to shake buyers and sellers: “The housing market has been remarkably resilient since Brexit and a clear election victory will only boost stability.”
Assuming the polls are correct and Theresa May wins a clear majority in June, short-term political uncertainty should give way to a smoother Brexit and brighter economic future.