Despite having seen the pound slide dramatically against the euro since 2008, finding comfort within a range either side of €1.12, there are still some commentators predicting that a sterling crisis is just around the corner. One of the major influencing factors of this will be the UK General Election, which is going to be held on 6 May.

But how will the result affect you, when transferring money from the UK to buy a property overseas? Our Currency partner Moneycorp look into the surrounding issues…

Public borrowing

The public sector showed net national debt of £741.6 billion at the end of February compared with £596.9 billion a year earlier. The genuine concerns surrounding the size of the UK’s public borrowing deficit will continue to undermine sterling, and is one of several battlegrounds in the election. Investors will be comforted if there is a new plan to tackle the deficit, and ultimately sterling should see a positive effect from this.

In February, Gordon Brown commented that he was ‘right to run a large deficit’ in order to boost the UK economy. But after increased pressure from the EU, the Labour party swiftly put more focus on public borrowing.

In the event of a hung parliament, Mark Deans, Corporate Client Dealing Manager at Moneycorp believes "the effect would be negative for sterling, which would remain at the lower end of range from the last two years. However with Labour’s sights now also on public borrowing, the effect may not be so bad, with investors realising that both parties are on the same page and the Conservatives appear more aggressive on the public borrowing plan."

Shadow chancellor George Osborne says the Conservative party will cut Britain’s deficit faster than Labour, commenting ‘The Conservatives have been arguing that we need to reduce our record budget deficit more quickly to support the recovery. Our argument is backed by credit rating agencies, business leaders, international investors and now the European commission.”

What’s the opinion?

Sterling has recently been hindered by the results of the most recent opinion polls, which are now showing that the Labour and Conservative parties are neck-and-neck in the run up to the General Election.

Mark Deans, Corporate Client Dealing Manager at Moneycorp, comments "As the opinion polls narrow and possibility of a hung parliament becomes more real, we’ve seen the pound weaken against the euro and US dollar. Unless we start to see those polls begin to widen again, it’s unlikely that we’ll see the pound do anything but wane until after the votes have been cast and verdict of the 2010 General Election announced.

"The Tory party’s ‘cut now’ mantra is more amenable to the market and it’s the Conservatives that are considered the least likely to preside over a UK credit downgrade. By extension, a Labour victory may mean a delay in reducing the public deficit and talk of possible UK credit downgrade would have a negative impact on the pound. A hung parliament will likely see credit rating agencies become more vocal and if decisions on how to put complicated cuts through take too long, a downgrade seems inevitable."

During Alistair Darling’s recent budget announcement, the markets were at least encouraged by signs that better than expected tax receipts had helped him to reduce this year’s overall budget deficit prediction to just £168 billion.

For expert guidance and the best exchange rates available contact Moneycorp on +44 (0)20 7589 3000 or visit the Moneycorp currency zone.