The Conservatives swept back to power in the UK general election with the biggest majority since Margaret Thatcher’s landslide in 1987, of around 80 seats, prompting a surge in the pound.

Sterling rallied by around 2% – 2.2% against the US dollar – on the back of exit polls predicting a big win for the Conservatives. With the Conservatives holding 365 seats, Labour 203, the SNP 48 and the Liberal Democrats 11. The latter’s now former leader Jo Swinson lost her seat to the SNP, capping a miserable night for both the Lib Dems and Labour.

Why has the pound surged?

Sterling’s sharp rise is a direct response to greater clarity about Brexit, as Boris Johnson’s deal is now expected to be passed in Parliament thanks to his Commons majority.

Prior to the exit polls, the pound was at €1.1819, US$1.3153 and AU$1.9045 at 21:40 on December 12. But by 22:10, when it was clear a Tory majority was expected, the pound surged by more than two cents against the euro, by more than three cents against the US dollar, and almost four cents against the Aussie dollar.

Jake Trask, FX Research Director at OFX, said:

“As it turned out, the pollsters and the bookmakers were correct with a Tory majority realised, and the margin of victory was always going to determine sterling’s rise.

“A narrow victory by 10-20 seats would have seen a small rally for GBP/USD through US$1.33 and beyond which had been priced in, to a certain extent, by markets already. But as the majority was much higher than that, it jumped towards the US$1.35 handle, as it means PM Boris Johnson’s Withdrawal Agreement Bill should be signed off ASAP.”

Unless there is ongoing in-fighting within the Conservative ranks, the country should now see a straightforward move onto Brexit’s next stage of negotiating the trade deal with the EU. But, to complete this within a matter of months to meet the transition period deadline – currently the end of December 2020 – is a tall order, and any delay could cause further uncertainty, potentially weighing on the pound again.