A dismal night for Labour and the Liberal Democrats began at 10pm when a BBC/ITV/Sky exit poll confounded all previous forecasts by suggesting the Conservatives would win more than 300 of the 650 seats in the House of Commons.
That prompted a 1% rise for the pound against the dollar, and sterling built on those gains this morning as it emerged the poll had perhaps understated the Tories’ performance.
By early morning the pound was trading 1.8% higher against the dollar at $1.55, as it became clear that David Cameron (pictured) is on the verge of winning a second term as prime minister.
Sterling also moved some 2.3% higher against the euro – its largest gain since 2009 – to 72.25p.
The FTSE 100 opened 2% higher at 7,036, with the FTSE 250 up 3.7% at 18,100, as investors who had feared a tight result, and prolonged political uncertainty, breathe easy once more.
With Labour’s threats to intervene in the banking and energy sectors now all but removed, the likes of RBS, Lloyds, Centrica and National Grid all opened around 6% higher.
There were even sharper moves in the FTSE 250, where property firms such as Berkeley rose 9%.
The BBC is forecasting the Conservatives will win 329 seats, giving them a narrow majority in the Commons, though the party could still choose to ally with the likes of Northern Ireland’s DUP in order to shore up its position.
Losses for Labour
Labour, on the other hand, are forecast to win just 233 seats, well below the polls’ predictions of 260-280 seats. In a shock development, shadow chancellor Ed Balls lost his seat to Conservative Andrea Jenkyns by 422 votes.
Meanwhile, a collapse in the Lib Dem vote has seen almost all senior figures in the party – with the exception of deputy prime minister Nick Clegg – lose their seats.
Both Clegg and Labour leader Ed Miliband have already come under pressure to resign as leaders of their respective parties, with statements expected from both later today.
One aspect of the results which the polls did get right was the extent of the Scottish National Party’s triumph in Scotland.
The SNP looks set to take 56 of the 59 seats north of the border, but the question now is how will the party reconcile its anti-austerity promises with a Conservative-controlled government.
Prime Minister David Cameron has also promised a referendum on EU membership in the event of a Conservative majority. For now, however, investors have viewed the party’s strong showing as a sign of stability.
Analysts at RBS said the EU referendum position is now “ambigious”.
“The clearer Conservative victory means an In-Out EU referendum is more likely to happen (so greater downside risk), but the under-performance by UKIP (certainly in terms of seats but also in terms of votes) will tend to lessen some of the eurosceptic pressure on Cameron.”
“More generally, Cameron (who supports remaining within a reformed EU) has probably seen his mandate strengthened and may well be in a slightly stronger position vis-à-vis his own eurosceptic backbenchers.”