A convincing Tory majority at the upcoming election will send the pound surging to a three-year high and put rocket boosters under the UK economy, according to asset manager Toscafund.
In a new poll shared exclusively with City A.M., Toscafund predicted Boris Johnson’s Conservatives will win a majority of about 30 in the 12 December vote, picking up a number of seats in formerly Labour heartlands.
The fund manager said such an outcome would let the UK leave the European Union with a deal. In a bullish set of predictions, it said this would cause an “unleashing of the consumption and investment” that Brexit uncertainty has held back in 2019.
The polling, produced for Toscafund by Deltapoll, said a Labour coalition government is very unlikely, but is nonetheless the other possible outcome. Tosca Fund said that under Labour the pent-up investment would “almost certainly dissipate entirely” sending the pound crashing to $1.09.
Toscafund’s forecasts are far more upbeat than a number of other recent reports, however. The CBI last week predicted that business investment growth will be an anaemic 0.3 per cent in 2020 as post-Brexit trade negotiations bring fresh uncertainty.
The Bank of England last month predicted business investment will rise by just a quarter of a per cent next year. The BoE said the UK economy would be held back in 2020 by more global trade tensions and the disruption of moving to a new economic model.
Toscafund chief economist Savvas Savouri argued against such views, saying: “Once it is clear the UK will exit the EU on good terms and in a timely fashion, the UK economy’s strong fundamentals are sure to once again impose themselves.”
Savouri said the certainty brought about by a Tory win would give domestic assets “clearance to take off”. It said it would likely send the pound surging to $1.48 from its current price of around $1.30.
Most City analysts have been less bullish, however, with an upper bound of $1.40 commonly touted. Oliver Brennan of economic consultancy TS Lombard has said it must be remembered that Johnson’s deal “is actually a hard Brexit”.
Toscafund said the rush of business investment would boost the domestically-focused FTSE 250, sending it to 23,920 from around 20,590. The FTSE 100 would suffer as a result of stronger sterling, however, falling around 120 points to 7,030.
Savouri said it “cannot be stressed enough” that this election “will have a historic effect in determining the UK’s economic and financial future”.
He said the radical policies of a Labour party that has proposed to increase spending by more than £80bn and is calling for a second Brexit referendum would be damaging. A Labour government could send the pound down to near-record lows and the FTSE 250 tumbling to 17,860, Toscafund said.