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With Liz Truss resignation, the race for the Conservative Party’s next leader has begun. Because the law requires that there always be a Prime Minister, Truss has stated that she will remain in the position until her successor is named.

The search for a replacement after Liz Truss resignation is expected to be completed by the end of next week. To be on the ballot, a candidate must receive at least 100 nominations from fellow Tory MPs, which means there will be no more than three candidates given the 357 Tory MPs.

In reality, there are likely to be only two or one candidate, and they will be elected without a vote by party members.

Nobody has confirmed that they will remain. Rishi Sunak, Penny Mordaunt, Suella Braverman, and Kemi Badenoch are all expected to enter. Boris Johnson is also rumored to be considering a comeback, though many argue that he comes with too much baggage given that he stepped down only three months ago.

However, if the Conservative Party wants a quick result, some contestants will need to step aside or a full member vote will be required.

Given his current role as Chancellor, Jeremy Hunt has stated that he will not run in this election; however, his fiscal event is still scheduled for the end of the month, by which time a new Prime Minister will be in place.

With Liz Truss resignation, is UK set for another general election?

Despite Liz Truss resignation, there will be no automatic general election to replace her. The Conservative Party will instead choose its next leader through an internal leadership election.

Although a new party leader is not required to call an early election, Boris Johnson did call one within a year in order to gain a parliamentary majority, which he did. Would a new Tory leader follow suit? It’s unlikely, given that polls currently favor the Labour Party winning the next general election, which is scheduled for Thursday, May 2, 2024.

In that case, there are only two possibilities for an early election:

A motion of no confidence is passed by a simple majority in the government, and 14 days pass without a confidence motion being received by the new government.
A motion for a general election must be approved by two-thirds of the House of Commons.

However, given the Conservative Party’s harsh criticism for its handling of the cost-of-living crisis, there are calls for a general election to provide a new government with a clear mandate.

Sir Kier Starmer has said:

“The British public deserve a proper say on the country’s future. They must have the chance to compare the Tories’ chaos with Labour’s plans to sort out their mess, grow the economy for working people and rebuild the country for a fairer, greener future. We must have a chance at a fresh start. We need a general election – now.”

While Lib Dem leader Ed Davies has said:

“We do not need another Conservative prime minister lurching from crisis to crisis, we need a general election, we need the Conservatives out of power and we need real change…It is time for Conservative MPs to do their patriotic duty, put the country first and give the people a say.”

However, it is more likely that a new leader will wait to see if polls rebound after they have had a chance to restore some economic stability.

How would an early election impact markets?

Investors, regardless of party affiliation, prefer elections with predictable outcomes. The Labour Party currently has 52% of the vote, followed by the Conservatives (23%), and the Lib Dems (10%).

The UK stock market

Short-term volatility in UK stocks and indices is common around elections, as domestic companies and London-listed international firms alike prepare for policy changes.

Stock markets also prefer a Conservative government that is more business-oriented. According to the Stock Market Almanac, the FTSE All-Share rose only three times when Labour won, compared to eight times when the Conservatives won, with average returns of -5.8% and 10.8%, respectively.

The Labour Party is currently leading in the polls, owing largely to public dissatisfaction with the current Tory government.

But, once an election is over, there’s no evidence that the stock market performs differently under a Conservative government than it does under a Labour government, because there are so many other factors at work besides Downing Street politics.

The stock market, for the most part, moves in the same direction after an election as it did before, and the FTSE All-Share has fallen by 8.57% year to date due to a combination of recession fears and the Ukraine crisis.

The Great British Pounds outlook

The pound is likely to move as investors and traders try to figure out how new policies will affect the UK economy, whether there is an election or just a change in leadership after Liz Truss resignation. Price swings of up to ten percentage points have occurred in previous elections.

When exit polls predicted a massive Tory majority in the last election, the pound soared. This was largely due to the fact that the outcome would put an end to the political uncertainty surrounding the UK economy at the time, namely Brexit.

Because the UK economy is in a worse state than it was three years ago, any future election is likely to have a similar impact on the pound. Liz Truss resignation couldn’t have come a more bad timing

Preparing for UK volatility

Whether or not a UK general election is called, the country can expect volatility in the coming months as political uncertainty adds to an already tense economic environment.

You should do the following to best prepare yourself:

Keep up with the latest analysis by utilizing our in-house experts’ news and analysis, as well as our in-platform Reuters feed.
Set up market alerts to receive notifications of important events and personalized price alerts via SMS, email, or in-platform messages.
Manage your risk by adding stops and limits to your positions to automatically close your trades at your predetermined profit or loss levels.