Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Markets hate uncertainty, we are told. Britain's snap election, once supposedly in the bag for Theresa May, now offers plenty of it.

Her poll lead has shrunk to a level where a hung parliament -- with no outright winner -- is a slim but significant possibility. That would send the pound back to January's level of $1.20, according to a Bloomberg survey of analysts.

But some uncertainties are worse than others. If the big uncertainty facing Britain is Brexit -- and the pound's performance over the past year suggests it is -- then it is hard to fully subscribe to the view that the most market-friendly outcome for U.K. assets is a thumping majority for Theresa May.

The Biggest Uncertainty
If the U.K. election upsets Theresa May's plans for a hard Brexit, that may help the pound
Source: Bloomberg

The thinking goes that a larger majority for May would give her room to sideline the Brexit hardliners in her own party and give her a freer hand in negotiating the terms on which Britain leaves the European Union.

Perhaps that's the case. The Bloomberg Pound Index rallied 2.5 percent in the month of April, when the snap election was called, though it has fallen since.

But this market-friendly hypothesis brushes up against May's market-unfriendly election platform. She has pledged to pull Britain out of Europe's single market and customs union, which Morgan Stanley expects will lead to a "significant" rise in trade barriers and a drag on economic growth. May's pledge to cap immigration is likely to hurt the economy, according to the Office for Budget Responsibility. That's uncertainty in spades.

Alberto Gallo, head of macro strategies at Algebris Investments, reckons that the negative impact of a Brexit without a deal -- which Theresa May has threatened in the past -- would push the pound below $1.20 and inflation above 3 percent. In this view, the stronger majority that May is asking for would not be one conducive to solid economic growth.

Obviously, Jeremy Corbyn has his own fair share of market-unfriendly policies like nationalizations or rises in corporation tax.

But that's why a hung parliament, in which either party would be denied a clear majority, might not have investors running for the hills. After the initial shock, the chances of big legislative changes would be lessened -- as would the chance of a hard Brexit, something that Corbyn has opposed.

A Labour-led coalition would strengthen the pound in the medium term, according to Deutsche Bank strategists. Morgan Stanley also reckons U.K. stocks would be a buying opportunity in this scenario. Financial and property shares, for example, have been hit hard by concerns over Brexit.

Brexit Hangover
Banks and real-estate stocks might look cheap if a hard Brexit appears less likely
Source: Bloomberg

It's also worth noting that investors have had experience with hung parliaments and coalition governments before, namely between 2010 and 2015. During this period, the U.K. economy outperformed the euro zone's more often than not. That isn't expected to happen this year or next, according to Bloomberg forecasts.

This might be a reason why there hasn't been much financial-market volatility in the face of tightening polls, a trend my colleague Marcus Ashworth has pointed out. 

Few expect Thursday will bring a political shock to markets on the scale of the Brexit vote or the election of Donald Trump as U.S. President. That might be rooted in faith that May's lead is more solid than polls believe -- but it might very well be a simple reflection that a bad result for the Conservatives is not necessarily a bad result for markets.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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